Shares of cloud-based data lake provider Snowflake (NYSE: SNOW) were in rally mode Monday, even on a fairly muted day for many tech stocks. Shares were up 4.8% as of 1:30 p.m. EDT.
Snowflake’s outperformance is likely due to a positive note from analysts on Goldman Sachswho today added the stock to the company’s “Conviction List.”
Goldman is positive on Snowflake’s entry point and innovation pipeline
Goldman analyst Kash Rangan today added shares of Snowflake to the company’s “Conviction List.” Rangan believes the stock’s recent weakness makes for an “attractive entry point” given the stock’s decline this year, while Rangan is bullish on the company’s new CEO, Sridhar Ramaswamy. Rangan believes Ramaswamy, who is a more product-focused executive than the company’s previous president, can accelerate Snowflake’s innovation engine to thrive in the AI era.
Notably, Ramaswamy co-founded AI search startup Neeva in 2019, which acquired Snowflake last year and brought Ramaswamy to Snowflake. Since then, he has led Snowflake’s artificial intelligence (AI) strategy, including the development of Snowflake Cortex, a fully managed service that simplifies the use of Snowflake for AI applications. He was named CEO in late February when former CEO Frank Slootman stepped down as chairman of the board.
Can Snowflake Reach Its Current Value?
Before today’s Goldman note, Snowflake was worth about $135 a share. That’s not all that much lower than the $120 price at its initial public offering (IPO) in September 2020, nearly four years ago.
It’s not that Snowflake hasn’t done well for the business. Core product revenue grew 34% last quarter, and remaining performance obligations, which account for new capacity that Snowflake must consume and recognize in future periods, accelerated 46%. Net retention, which is how much existing customers used last quarter compared to the year-ago quarter, came in at a healthy 128%.
Still, there are concerns. Management has forecast product revenue growth of just 24% for the full fiscal year, suggesting a slowdown. RPO was a bright spot from a year ago, but actually down slightly from the previous quarter. And a net retention rate of 128% actually marks a continued slowdown and the lowest figure in Snowflake’s history as a public company.
Now, while Snowflake has traded at an extremely high price its entire life as a public company, it’s still not exactly cheap at 15 times revenue. So while Rangan sees Snowflake’s share price falling near its IPO price as a good entry point, keep in mind that the stock isn’t particularly cheap overall. The new CEO will need to accelerate growth once again through AI innovation to get the stock to material heights.
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Billy Duberstein and/or his clients have no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Snowflake. The Motley Fool has a disclosure policy.
Why Snowflake Revolted Today to Kick Off July was originally published by The Motley Fool
