News: Snowflake Stock Plunges On Weak Outlook Amid Slower Cloud Computing Growth

Shares of Snowflake (SNOW) experienced a significant decline on Thursday after the software company revised its full-year fiscal 2024 outlook due to slowing growth among cloud computing partners like Amazon.com (AMZN). Despite exceeding Wall Street's expectations for first-quarter earnings, investors were unimpressed.

Snowflake released its financial results for the first quarter after the market closed on Wednesday. In premarket trading on Thursday, SNOW stock dropped 15% to 150.50.

For the full-year fiscal 2024, Snowflake adjusted its forecast for product revenue growth from its previous estimate of 44%-45% to 34%, amounting to $2.6 billion.

TD Cowen analyst Derrick Wood noted in a client note, "The debate will be over whether this is the last (guidance) cut."

Snowflake provides data analytics and management tools that operate on cloud computing platforms, including Amazon Web Services. Since Snowflake's business model is consumption-based rather than subscription-based, concerns have arisen among investors about a potential decrease in demand as the U.S. economy slows down.

Raymond James analyst Simon Leopold explained, "Snow's growth benefited from the ease with which customers could ramp usage, but it now suffers as it is an application where customers can easily dial back."

Snowflake also announced the acquisition of Neeva, an artificial intelligence startup, although the terms of the deal were not disclosed.

Additionally, Snowflake has scheduled an investor day for June 27, which coincides with its annual user conference.

Evercore ISI analyst Kirk Materne expressed in a note, "The big question going into the analyst day in June will be whether the updated guidance is the 'final cut' in this optimization cycle," adding, "In talking with the company, long-term commitments have not changed, but some larger customers running ahead of plan on consumption decided to cut back on storage to save money."

For the quarter ending April 30, Snowflake reported adjusted earnings of 15 cents per share, compared to no profits during the same period the previous year. Analysts polled by FactSet had expected a profit of 5 cents per share. Snowflake's revenue increased by 48% to $623.6 million, surpassing analysts' prediction of $609.7 million.

Looking ahead, Snowflake forecasts product revenue in the range of $620 million to $625 million for the current quarter ending in July. However, analysts had anticipated revenue of $647.1 million.

Prior to the earnings report, SNOW stock had gained 22% in 2023.

Snowflake generates approximately 95% of its total sales from product revenue, which comes from cloud-based data analytics and storage services. The company also earns revenue from professional services like consulting and training.

Cloud computing growth has slowed for Snowflake's key partner, Amazon, as well as Microsoft and Google-parent Alphabet. These cloud computing giants are looking to benefit from artificial intelligence workloads in the long term.