Can I buy Snowflake stock now?

shares of snowflake (snow 0.58%) The stock was in the doghouse after the company’s fiscal 2024 fourth quarter results (three months ending January 31, 2024) were released on February 28. Despite the better-than-expected numbers, the stock fell 18% in one session.

Snowflake’s steep decline was due to the company’s inadequate guidance, which fell far short of Wall Street expectations. And the announcement of CEO Frank Slootman’s retirement seems to have put further pressure on Snowflake stock.

Let’s take a look at Snowflake’s performance and outlook to see if its steep decline is an opportunity for smart investors to buy this cloud stock.

Snowflake’s quarterly results were well above expectations, but guidance was weak

Snowflake reported fourth-quarter accounting revenue of $775 million, an increase of 32% year-over-year. This number easily beat the consensus estimate of $761 million.

Snowflake’s revenue growth was also strong, with adjusted earnings up 150% year-over-year to $0.35 per share, well above Wall Street expectations of $0.18.

For the full year, Snowflake reported total revenue of $2.8 billion, a significant 36% year-over-year increase. Even better, full-year adjusted net income nearly quadrupled from $0.25 per share in fiscal 2023 to $0.98 per share. But all the good work was undone when management revealed its guidance.

The company expects product revenue to increase 22% to $3.25 billion in fiscal 2025. This represents a significant slowdown from the 38% increase in product revenue of $2.67 billion recorded in fiscal 2024. Meanwhile, analysts had expected Snowflake to increase its full-year product revenue by 30% to $3.4 billion.

But Snowflake, which provides cloud-based solutions that allow customers to consolidate data into a single platform and use that data to build applications and gain insights, is taking a cautious approach to that guidance. We adopted it. The company started fiscal year 2024 under difficult circumstances. Mr. Slottman said on his latest earnings call:

The year began in a volatile macroeconomic environment. We have witnessed emotional blunting and customer hesitation due to lack of business visibility. Customers prefer a wait-and-see attitude rather than leaning into expanding long-term contracts. This reversed in the second half of this year as we started to see larger multi-year commitments.

However, Chief Financial Officer Mike Scarpelli added that while spending trends have improved, they have not returned to pre-2024 patterns. As a result, the company was cautious when announcing its outlook for the current fiscal year.

But a closer look at other key metrics suggests it could ultimately deliver stronger growth, so smart investors might buy the stock for this reason. should not be discouraged.

The drop looks like a buying opportunity

Snowflake’s fiscal 2025 revenue outlook was lower than analysts expected, but the company’s remaining performance obligations (RPOs) suggest its long-term outlook remains intact. This metric, which refers to the total value of Snowflake’s future contracts that have yet to be fulfilled, increased by a whopping 41% year-over-year to $5.2 billion last quarter.

For some perspective, Snowflake’s RPO was well below $4 billion in the first three quarters of its fiscal year. This strong growth in RPO was driven by an improvement in the company’s customer base and a surge in customer spending.

The company ended the quarter with 9,437 customers, an increase of 22% year over year. Additionally, the number of Snowflake customers with product revenue exceeding $1 million increased by 39% year over year to 461 companies. Also, the company ended the quarter with a net revenue retention rate of 131%.

A value above 100% on this metric, which compares quarterly spending by enterprise customers to spending by the same group of customers in the same period last year, indicates that Snowflake customers have increased their spending. This increase in spending also led to improved margins for Snowflake. The company ended his fiscal year 2024 with an adjusted gross margin of 78%, up from his 75% in the prior year.

All of this indicates that the Snowflake slowdown is likely to be temporary. That’s why it may be a good idea for investors to take advantage of this rally in cloud stocks. This cloud stock is built for strong long-term growth, and it could help it get back on the gas.