Snowflake (NYSE:SNOW) shares edged higher on Thursday even after the data warehousing company reported first-quarter results that beat expectations, prompting some analysts to question the business model.
Stifel analyst Brad Reback noted that while the first quarter “slightly exceeded expectations”, calling for a free cash flow margin of more than 40%, a difficult environment leads to lower utilization.
“[W]We note that marginal revenue fell short of expectations as management highlighted that some customers were consuming less than originally planned in a more challenging operating environment and changing economic landscape.” Reback wrote in a note to clients, adding that companies are moving towards “optimizing” cloud spend due to slowing business.
Reback retained the company’s holding rating on Snowflake (SNOW) shares and lowered its price target per share to $120 from $240, a 50% reduction.
Snowflake Stocks (SNOW) rose slightly to $132.89 midday after falling almost 13% earlier in the session.
For the quarter ended April 30, Snowflake (SNOW) lost $0.53 per share, on revenue of $422.4 million. Wall Street analysts expected the company to lose $0.51 a share on $413 million in sales.
Snowflake (SNOW), led by Frank Slootman, said product revenue grew 84% year-over-year to $394.4 million.
Looking ahead, Snowflake (SNOW) expects second-quarter product revenue to be between $435 million and $440 million, up 71-73% year-over-year, revenue from its products for its entire fiscal year being within a range of $1.89. billion to $1.9 billion, up 65% to 67% year over year
StreetAccount’s consensus was for second-quarter product revenue growth of 72%, CNBC reported. For FY22, the consensus was for 66% growth. Product revenue growth in the second quarter would be the weakest since Snowflake went public, Bloomberg reported.
On Tuesday, Rosenblatt analyst Blair Abernethy raised his rating on Snowflake (SNOW) stock and said the stock could post strong gains this year.
Analysts have been overly bullish on shares of Snowflake (SNOW). Before Snowflake announced its results and its stock was hit, it had an average rating of To buy Wall Street analysts, and a less enthusiastic To buy by Seeking Alpha authors. In contrast, Seeking Alpha’s quantitative system, which consistently beats the market, ranked Snowflake among the Hold.