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Snowflake Stock Is Tumbling on a Disappointing Forecast. The CEO Has an Explanation.

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Shares of cloud-based data-software firm Snowflake are falling in late trading.

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Snowflake

stock is sharply lower in late trading Wednesday after the cloud-based data-software company posted disappointing fiscal 2023 guidance that overshadowed strong results for the fiscal fourth quarter ended Jan. 31.

One of the most-expensive cloud-software stocks by almost any measure—and one of the sector’s fastest growers—in the current environment, highflying Snowflake stock was vulnerable to even a modest disappointment. In late trading, Snowflake shares are down 20%, to about $210. Snowflake (ticker: SNOW) went public in September 2020 at $120 a share, but doubled on its first trade.

For the quarter, Snowflake posted revenue of $383.8 million, up 101%, and ahead of the Street consensus forecast of $372.6 million. Product revenue in the quarter was $359.6 million, up 102%, and ahead of the company’s guidance range for $345 million to $350 million. (Snowflake does not provide overall revenue guidance.) Non-GAAP product gross margin was 75% in the quarter. Adjusted free cash flow was $102.1 million, or 27% of revenue.

The company said its net revenue retention rate, a measure of repeat business, was 178%, which was up from 173% in the October quarter. Remaining performance obligations were $2.6 billion, up 99% year-over-year, and accelerating from 94% growth one quarter earlier. The company now has 5,944 customers, including 184 with trailing revenue of more than $1 million—up from 116 just one quarter earlier.

For the full year, product revenue was $1.14 billion, up 106%, while adjusted free cash flow was $149.8 million, up 12%.

For the April quarter, the company sees product revenue of $383 million to $388 million, up between 79% and 81% from a year ago, about flat sequentially, but a little above the Street consensus at $382 million. The company expects an operating margin in the quarter on a non-GAAP basis of negative 2%, which compares to positive 5% in the latest quarter on the same basis.

For the full year, Snowflake is projecting product revenue of $1.88 billion to $1.90 billion, up 65% to 67%, falling short of the Street consensus estimate for $2 billion, with operating margin of 1%, and an adjusted free-cash-flow margin of 15%.

Even with the stock’s late-trading drop, shares are trading at about 34 times the guided current-year sales, a valuation that few other companies can match.

Write to Eric J. Savitz at eric.savitz@barrons.com

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