A measure of work booked but not yet performed rose by 213%.
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Snowflake shares are trading higher following a well-received earnings report, but some analysts still worry that the stock is too richly valued to buy.
For the fourth quarter, Snowflake (ticker: SNOW) posted revenue of $190.5 million, up 117% from a year earlier and ahead of the Wall Street consensus estimate of $178.5 million. The cloud-based data warehousing company had product revenue of $178.3 million, up 116% and above the range of $162 million to $167 million it had told investors to expect.
Secondary metrics also impressed. Remaining performance obligations, or RPO, a measure of work contracted for but not yet delivered, was $1.3 billion, up 213%. Net revenue retention, a metric that tracks renewal rates, was up 168%.
The stock was up 5.1%, to $259.56 on Thursday afternoon.
The reaction of the Street boils down to this. Although Snowflake continues to crush it, the stock still has a valuation that makes some people uncomfortable.
Deutsche Bank’s Patrick Colville responded to the results by lifting his rating on Snowflake shares to Buy from Hold. He raised his target for the stock price to $300, from $270.
“We see Snowflake’s growth as suggestive of a very large [total addressable market] and a clear product market fit,” he wrote in a research note. “RPO rose 213% in Q4, and supporting metrics such as logo adds and customers with more than $1 million in product revenue all trended up and to the right, suggestive of continued momentum.”
Mizuho analyst Greg Moskowitz repeated his Buy rating and $350 target. “We maintain that Snowflake is enabling customers to transform from large data stores to data-driven organizations, and that companies will increasingly standardize on Snowflake,” he wrote. The analyst said that though Snowflake trades at a substantial premium, the stock can keep rising as the company continues to grow quickly over the next year and more.
Piper Sandler’s Brent Bracelin maintained his Buy rating and $312 target price. “The scale of new contracts and renewals during Q4 reinforces our bullish view on Snowflake as a new enterprise data cloud platform of choice,” he wrote.
But other analysts have concerns. Citi’s Tyler Radke repeated his Neutral rating, and cut his target price to $295, from $325. Radke said Snowflake’s initial forecast for the current fiscal year implies a deceleration of 38 percentage points in the company’s growth rate. He also raised concerns about potential problems related to recent changes in the company’s sales organization and its execution in the Asian-Pacific region.
“To be clear, these issues are somewhat trivial from a long-term growth perspective, but they also illustrate that the Snowflake story may not be completely flawless,” he wrote. “With increased scrutiny on high growth software, combined w/ the pending lockup expiry, we believe the stock could be volatile in the near-term.”
Bernstein analyst Zane Chane repeated his Market Perform rating and $264 target. He said that while the results were higher than expected, and although he is positive about Snowflake’s business, he remains on the sidelines “given the healthy valuation and macro/rate risk facing high-multiple growth stocks.”
Canaccord Genuity’s David Hynes kept a Hold rating, with a $275 price target. “This company is a monster,” he wrote n a research note. “You can gripe about valuation, and that’s legitimate – heck, we’re at Hold – but it’s really hard to poke holes in the fundamentals here.”
Still, the valuation, at close to 50 times estimated revenues for fiscal 2022, gives him pause. “We’re going to keep a close eye on this one – we’ve got another lock-up expiry on March 5 – and hopefully we can be opportunistic with an upgrade if we get a chance. For now, Snowflake remains a valuation-based Hold.”
Write to Eric J. Savitz at [email protected]
