[ad_1]
A rally in big tech stocks is pushing broad indexes toward all-time highs. Meanwhile, several other tech stocks are still trading well below their record prices. One such high-growth tech stock is Snowflake (New York Stock Exchange: Snow), down about 64% from its all-time high. Despite the high multiple, I’m bullish on Snowflake stock. This is because of its strong revenue growth, high customer retention rate, and solid cash flow margins.
Snowflake overview
Snowflake, valued at $51.4 billion, aims to help businesses leverage their data on its Data Cloud platform. Snowflake says his customers can use his Data Cloud to integrate siled data, power data applications, discover and share data, as well as a variety of AI/ML (artificial intelligence/machine learning) capabilities. ) and analytical workloads.
Essentially, Snowflake provides a data analytics platform for enterprises across multiple clouds and geographies. Snowflake went public in 2020 and hit a record high in November 2021 on the back of incredible revenue growth. For context, the company’s sales grew from $265 million in fiscal year 2020 (ending in January) to $592 million in fiscal year 2021, $1.2 billion in 2022, and $2.06 billion in 2023. increased to $1 million.
How did Snowflake perform in the fourth quarter of 2024?
Snowflake stock plummeted more than 20% in one trading session after the company announced its fourth quarter results. The company announced the departure of CEO Frank Slotman, who led Snowflake since 2019 and took it public a year later.
Investors were also concerned about Snowflake’s slowing sales growth. Sales increased 32% year over year to $774.7 million, and operating loss widened to $275.5 million from $239.8 million in the same period last year. Snowflake forecast first-quarter product revenue of $745 million to $750 million, below expectations of $759 million. The company also expected adjusted operating profit margin for the first quarter to be 3%, lower than the forecast of 7.2%.
In the fourth quarter, Snowflake’s sales were driven by younger customers migrating from legacy vendors and adding new workloads. Additionally, verticals such as financial services and retail were the largest revenue contributors, while spending by customers in the EMEA (Europe, Middle East, and Asia) region increased significantly.
Solid financials, customer growth, and retention rates
Snowflake highlighted that customer optimization normalized in the fourth quarter, with eight of the top 10 accounts continuing to see growth. Historically, optimization has expanded long-term opportunities for companies. At the end of his 2024 fiscal year, Snowflake had 461 customers who spent at least $1 million annually on the company’s platform, a 39% increase over the previous year. He also has 83 customers that generate at least $5 million in product revenue each year, up from his 75 customers in the third quarter.
In addition, 691 of the Forbes Global 2000 companies are customers, an increase of 8% year over year. Snowflake’s total customer count increased from 7,744 in the same period last year to 9,437 in the fourth quarter of 2024.
The company’s net revenue retention rate is 131%, suggesting that existing customers have increased their spend by 31% over the past 12 months. A growing customer base and increased spending are key drivers for his SaaS (software-as-a-service) companies, including Snowflake.
Remaining performance obligations (RPO) at the end of the fourth quarter were $5.2 billion, representing 41% year-over-year growth and providing shareholders with ample near-term earnings prospects. RPO does not predict new sales, but rather provides insight into solid future revenue, since Snowflake expects 50% of RPO to be recognized as revenue in his next four quarters. , indicating that the macro environment is improving.
Snowflake’s strong revenue growth has led to steady cash flow for the tech giant. Operating cash flow in the fourth quarter increased 59% to $344.6 million, and adjusted free cash flow in fiscal 2024 was $810 million, representing a margin of over 30%.
Snowflake has $4.8 billion in cash, giving it plenty of room to reinvest in growth projects and pursue accretive acquisitions, increasing future cash flow in the process.
What is the target price for Snowflake stock?
Of the 35 analyst ratings given to the Snowflake stock, 24 are Buy, 9 are Hold, and 2 are Sell, giving it a Moderate Buy consensus rating. Snowflake’s average price target is $212.23, implying a potential upside of 35.2% from current levels.
Snowflake is expected to report adjusted earnings of $0.97 per share in fiscal 2025 and $1.32 per share in fiscal 2026. So at a price of 168 times forward earnings, Snowflake stock is very expensive, considering the sector’s much lower median forward earnings multiple of 24.9x. .
Alternatively, growth stocks command a premium. Additionally, the high-tech company’s asset-light business allows it to benefit from high operating leverage and grow profit margins faster than revenues.
Take-out
Snowflake stock isn’t cheap, but it continues to grow rapidly and should attract the attention of investors with a high appetite for risk. With enough dry powder available, Snowflake’s expanding cash flow, his margins, high retention rates, and enviable sales numbers make it a solid investment to consider now.
disclosure
[ad_2]
Source link
