Snowflake (SNOW) reported a wider-than-feared loss in the fourth quarter and provided more bearish than expected revenue guidance for 2022, sending the shares into negative territory earlier in the session, but the stock has since recovered. While several Wall Street analysts lowered their price targets on the stock following the results, Deutsche Bank analyst Patrick Colville upgraded Snowflake to Buy, saying he sees its product revenue growth as suggestive of a "very large" total addressable market and a "clear product market fit."
RESULTS: Snowflake reported fourth quarter losses per share of (70c) and revenue of $178.3M, both below the expected (17c) and $178.5M, respectively. The company also reported fourth quarter remaining performance obligations, or RPOs, of $1.3B, representing 213% year-over-year growth, and a net revenue retention rate of 168% versus 162% in the third quarter. Additionally, Snowflake said it had 77 customers with trailing 12-month product revenue greater than $1M versus 65 customers in the third quarter. For the first quarter, Snowflake sees product revenue of $195M-$200M, with revenue consensus at $213.06M. The company also sees fiscal year 2022 product revenue of $1.00B-$1.02B, below the expected $1.10B.
CEO Frank Slootman said in a CNBC interview that "eliminating [our] dual-class share structure is just easier and it's a way of simplifying things." Growth is not all about taking business from legacy players as Snowflake "is also involved in many new products that don't involve legacy," the executive explained.
BUY SNOWFLAKE: Deutsche Bank analyst Patrick Colville upgraded Snowflake to Buy from Hold with a price target of $300, up from $270. The company's product revenue rose 116% in the fourth quarter, a two-percentage point sequential acceleration and at the high end of the buy-side expectations, Colville told investors in a research note. The analyst sees Snowflake's growth as suggestive of a "very large" total addressable market and a "clear product market fit." The stock's risk/reward now looks more favorable, Colville said.
Meanwhile, Morgan Stanley analyst Keith Weiss raised the firm's price target on Snowflake to $270 from $265 but kept an Equal Weight rating on the shares. While Snowflake's 116% year-over-year product revenue growth in the fourth quarter illustrates its strong positioning, data points on ramping adoption of its Data Cloud "may be even more important in establishing clear competitive moats," Weiss contended. Despite his view that Snowflake is "firing on all cylinders," his forward estimates remain unchanged following the quarterly report and he thinks a lack of upward revisions "may leave the shares marking time, as the company grows into its multiple."
TARGETS LOWERED: Citi analyst Tyler Radke lowered the firm's price target on Snowflake to $295 from $325, while keeping a Neutral rating on the shares. The analyst acknowledged the company reported "strong" fourth quarter results with triple digit product revenue growth slightly accelerating from the third quarter and even stronger bookings and megadeal metrics. However, initial fiscal 2022 guidance was only issued in-line with the Street and implies a 38-point bookings deceleration, he contended. Radke added that while it could just be typical conservatism, he believes there could be an impact from increased uncertainty on legacy migration projects, sales organizational changes and execution issues. He thinks the stock could be volatile in the near-term.
Barclays analyst Raimo Lenschow also lowered his price target on Snowflake to $270 from $295 and kept an Equal Weight rating on the shares. The company posted another quarter of "impressive growth at scale" but its consumption-based model leads to some degree of conservatism in guidance as new contracts take time to scale and often do not make a meaningful contribution for several quarters, Lenschow told investors in a research note. Nonetheless, the analyst still believes Snowflake will continue to exceed expectations.
Also keeping a Neutral rating on the shares, Goldman Sachs analyst Kash Rangan lowered the firm's price target on Snowflake to $270 from $310 following quarterly results. The analyst continues to view Snowflake as well positioned to replace incumbent data warehousing solutions owing to its "scalable and elastic" cloud native platform, but believes this is largely reflected in the company's valuation. Credit Suisse analyst Brad Zelnick also lowered the firm's price target on Snowflake to $275 from $310, while keeping a Neutral rating on the stock.
PRICE ACTION: In morning trading, shares of Snowflake have gained almost 9% to $268.90.
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