Analyzing Snowflake’s Slowdown: Is the Stock Still Worth Investing In?

Snowflake Stock

Snowflake (SNOW:NYE), a cloud-based data warehousing company, announced its Q4 FY’23 results, surpassing expectations with $589 million in revenue, a 53% YoY growth, and adjusted operating margins at 6%, up from 5% in the previous year.

Snowflake’s total customer count also increased from 7,292 to 7,828 in Q4, while net revenue retention stood at 158%. Additionally, the company’s free cash flow margins grew to 35%, up from 18% YoY. Despite the economic headwinds and cooling growth for major public cloud players, such as Amazon’s AWS and Microsoft Azure, Snowflake’s demand for its cloud data warehousing tools remained steady.

However, the company’s FY’24 guidance was weaker than expected, projecting product revenues to grow by 40% to $2.7 billion, a slowdown from the 70% growth seen in FY’23. Adjusted operating margins are projected to remain at 6%, and adjusted free cash flow margins will stand at 25%.

Additionally, the company’s rising share count due to stock-based compensation remains a concern, with management projecting a weighted average of 363 million diluted shares in FY’24 compared to an average of less than 319 million in FY’23.

Despite the slower growth and dilutive effect, Snowflake’s valuation appears attractive, trading at 16x projected FY’24 revenue and 12x FY’25 revenue, which is well below the 50x plus multiples seen in 2021. Furthermore, Snowflake is well-positioned to benefit from the pivot from on-premise databases to cloud-based warehousing solutions.

The company has reiterated its long-term target of $10 billion in annual revenue by FY’29 and could fare better considering its growing addressable market, about $248 billion, and its focus on new workloads such as cybersecurity. With a valuation of $180 per share, about 25% ahead of the current market price, Snowflake appears to be a solid investment option with a long growth runway.

 

Snowflake Stock Forecast:

Based on the Snowflake stock forecasts from 40 analysts, the average analyst target price for Snowflake Inc. is USD 189.84 over the next 12 months. Snowflake Inc.’s average analyst rating is Strong Buy.

Stock Target Advisor’s own stock analysis of Snowflake stock is Slightly Bearish, which is based on 3 positive signals and 6 negative signals. At the last closing, Snowflake stock price was USD 142.45. Snowflake Inc.’s stock price has changed by -7.73% over the past week, -11.40% over the past month, and -26.19% over the last year.

SNOW Ratings by Stock Target Advisor

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