Snowflake Shares Are Sliding. Growth Could Be Slowing Down.

The fast-growing cloud-based data warehouse software provider has projected product revenue for the quarter of between $235 million and $240 million, up between 88% and 92% from a year earlier, with an operating margin of -19%. The company’s guidance for the January 2022 fiscal year calls for product revenue of between $1.02 billion and $1.035 billion, with an operating margin of -17%.

Apparently weighing on the stock is a report from Cleveland Research asserting that Snowflake’s new business signings in the July quarter slowed from the April quarter. The firm also reportedly said that Snowflake is seeing increasing competitive pressure from rival tools offered by the large cloud computing providers, in particular Google’s BigQuery software.

Piper Sander analyst Brent Bracelin wrote in a research note Friday that the stock’s decline reflects “fears of moderating growth metrics on elongating sales cycles,” and that it appears overdone. He said the company could report some moderation in the growth of remaining performance obligations, a measure of work contracted for but not yet performed, but mostly due to a tough year-ago comparison rather than any change in business fundamentals. He noted that RPO growth has averaged 218% over the last four quarters, and estimates the July quarter increase at 144%.

Bracelin added that “there is little debate that Snowflake is gaining popularity as many large enterprises are replatforming data lakes and modern analytics architectures on top of Snowflake.” He said research finds the company has recent wins with customers like Baxter, Kimberly-Clark, T-Mobile and Williams-Sonoma, among others.

Bracelin also wrote that the company’s triple-digit growth rate suggests it won’t take long for Snowflake to grow into its elevated valuation level. He notes that Snowflake now trades for about 33 times calendar 2023 sales estimates down from a peak at 53 times in December.

Write to Eric J. Savitz at [email protected]