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Snowflake (Nasdaq: Snow), a company that provides pay-as-you-go data aggregation software, saw its stock price fall in late February after it released somewhat disappointing financial forecasts for fiscal 2025. The stock’s more than 30% decline since then reflects its previously strong valuation, as it was trading at a forward P/E of 209.4 times, making it more sensitive to small setbacks. Now, with a more realistic valuation, Snowflake is gaining attention as a potential investment, and I’m adopting a slightly bullish outlook.
Why did SNOW stock fall?
A major factor in Snowflake’s recent stock price drop from $236 to less than $160 was the unexpected departure of CEO Frank Slotman at the end of February. Mr. Slotman had held the position for five years and was highly regarded by investors for his excellent track record, but his resignation surprised the market. With Slotman’s successor Sridhar Ramaswamy now at the helm, there is uncertainty about his effectiveness as the new CEO, contributing to the anxious market reaction.
Another reason for the decline is that the company’s financial outlook for the first quarter of 2025 and fiscal year 2025 fell short of Wall Street expectations. The company forecast product revenue of $745 million to $750 million for the first quarter of 2025, well below the analyst consensus estimate of $768 million. The company projected product revenue of $3.25 billion in fiscal 2025, missing the consensus estimate of $3.43 billion. This unexpected guidance increased investor uncertainty and impacted stock price performance.
bloomberg recognizes product revenue as a key metric for Snowflake, and the recent performance of this metric has had a significant impact on SNOW’s share price decline. The concerns stem from Snowflake’s consumption-based business model. As the U.S. economy slows, investors are concerned that a drop in demand will affect the company’s financial health.
Despite these concerns, Snowflake remains competitive with cloud giant Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Google (NASDAQ:Google) (NASDAQ:GOOG) recognizes the ability to efficiently share vast datasets and continues to offer their platform to customers. Although Snowflake’s revenue growth is expected to slow next year, the company’s stock remains attractive, supported by a more reasonable valuation, ability to capitalize on AI trends, and a recent history of strong growth.
Snowflake: Paving the way for widespread adoption of AI
Snowflake provides customized data analysis software for cloud computing platforms and has expanded its reach to include cloud data management solutions. Through data warehouses, customers can seamlessly share data with partners using multiple online storage systems. These capabilities position Snowflake to take advantage of the increasing adoption of generative AI.
Several analysts agree. RBC Capital analyst Matthew Hedberg said in his recent report: As such, we believe Snowflake is well-positioned given the large amount of customer data on its platform and new generation AI products that help increase workload utilization. ”
Snowflake’s business model is primarily focused on data consumption, and this approach is well-aligned with current market trends and has come under close scrutiny for its effectiveness. Last fall, Snowflake announced Cortex, a comprehensive, fully managed service that provides access to advanced large-scale language models (LLMs). LLM allows the user to interact with the AI using simple prompts such as search queries, without requiring knowledge of algorithms.
However, increasing acceptance of AI is not the only reason to be optimistic about SNOW. The company is also strengthening its position by significantly expanding its partnership with Amazon Web Services (AWS).
A key aspect of the deal is that Snowflake has committed $2.5 billion in AWS-related spending over the next five years. This partnership aims to expand the development of industry-specific solutions, strengthen product integration, and enhance sales and marketing collaboration. Currently, Snowflake and AWS have over 6,000 joint customers, with approximately 84% of Snowflake’s customers using AWS for their cloud workloads.
Snowflake fights slowing growth
Snowflake’s recent financial forecasts suggest slower growth in the coming months. Despite product revenue beating expectations at $738.1 million in Q4 2024, up 33% year over year, the company’s outlook for Q1 2025 is at a pace inconsistent with analysts’ previous expectations. It shows. This indicates a potential change in growth trajectory.
Looking ahead, Snowflake’s fiscal 2025 outlook projects product revenue growth to be only 22%, significantly slower than the 38% growth in fiscal 2024. The company’s operating margin forecast for the current fiscal year is 6%, marking his 2% of sales. Points will decrease from 2024.
On the revenue front, Snowflake reported fourth-quarter 2024 adjusted EPS of 35 cents, beating analyst estimates of 18 cents. The consensus EPS estimate for Q1 2025 is 17 cents. Despite these strong revenues, Snowflake faces challenges, as evidenced by its return on assets (ROA) of -8.48% over the past 12 months, which is below the industry average. Masu. This suggests that maximizing returns from assets is potentially difficult and peak financial performance may be hampered.
Is SNOW stock a buy, according to analysts?
TipRank analysts have rated SNOW a Moderate Buy, based on 24 Buy, 9 Hold, and 2 Sell ratings given over the past 3 months. Snowflake’s average price target is set at $212.23, representing a 34.6% upside from the previous share price. These analysts’ price targets for next year range widely, with a low of $150.00 per share and a high of $260.00 per share.
Final analysis of SNOW
The recent decline in SNOW’s stock price presents a more attractive buying opportunity for investors, as the valuation appears more sustainable. Although metrics such as return on assets paint a mixed picture, SNOW still has some strengths. In the long term, the company will be able to take advantage of the increased demand for data driven by AI. In addition, we plan to further support Snowflake’s growth through our strategic partnership with AWS.
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