HomeBusinessIs it an after-sales purchase?

Is it an after-sales purchase?

Shares of data cloud infrastructure provider Snowflake (NYSE: SNOW) were hammered on Thursday. The share price drop came after the company’s fourth-quarter earnings report, which showed better-than-expected revenue growth for the period, but also weaker-than-expected expectations for both the first quarter and full year of fiscal 2025.

Additionally, news that the tech company’s veteran CEO Frank Slootman was retiring likely also played a role in spooking investors.

With shares falling sharply last week, is now a good time to buy? Or are stocks still too expensive to consider?

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A strong fourth quarter

Snowflake’s fiscal fourth quarter was actually quite good. After a sustained period of rapidly declining revenue, Snowflake’s year-over-year revenue growth of 32% for the fourth quarter was actually in line with the 32% growth it reported for the third quarter. Additionally, fiscal fourth quarter revenues easily exceeded management’s expectations for 29% to 30% growth.

Another impressive metric was Snowflake’s 41% year-over-year increase in remaining performance obligations (RPOs) during the fourth quarter. These bookings represent contracts to spend certain amounts of money with the company over time by using the platform.

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Because Snowflake operates a usage-based model, it will not recognize revenue from these contracts until each customer’s usage occurs on the platform. Still, the company’s RPOs of $5.2 billion bode well for consumption on the platform. Snowflake Chief Financial Officer Michael Scarpelli said in the company’s fiscal fourth-quarter earnings results that the 41% year-over-year increase in bookings for the quarter signals “an improving macro environment.”

What about guidance?

Despite fiscal fourth-quarter revenues exceeding both management and analyst expectations, Snowflake’s expectations for both fiscal first quarter and full fiscal 2025 were disappointing. Management said it expected product sales, which typically account for about 95% of total sales, to slow from 33% growth in the fourth quarter to somewhere between 26% and 27% in the first quarter of 2025 For the full year Management said it expects product sales growth of just 22% for fiscal 2025. Both figures were below analysts’ expectations.

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However, it’s worth noting that Scarpelli emphasized during the earnings call that his expectations for the year are based on more conservative consumption forecasts. Notably, it reflects the lower consumption patterns the company saw in 2024. “We have revised our model to look at more recent history rather than going too far back in history to predict consumption patterns,” he said.

Patience could be rewarded

Against this backdrop, investors might want to hold off on buying shares in this growth stock today.

The company’s market cap, which at the time of writing is above $60 billion, remains difficult to justify as Snowflake continues to report significant net losses. The net loss for fiscal 2024 was about $838 million, worse than the $797 million loss in fiscal 2023.

Given the high valuation, it might be wise for investors to be patient and wait for a possible bigger sell-off in Snowflake stock. After all, the stock is extremely volatile, so it wouldn’t be surprising if investors were presented with a better buying opportunity at some point in the future.

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Should You Invest $1,000 in Snowflake Now?

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Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool holds and recommends positions in Snowflake. The Motley Fool has a disclosure policy.

Snowflake Stocks: Is It a Buy After Sale? was originally published by The Motley Fool

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