Snowflake Earnings: Stable Buying Patterns With Consumption Trends Up

Key Morningstar Metrics for Snowflake

• Fair Value Estimate: $187.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Snowflake’s Earnings

We maintain our fair value estimate of $187 per share for Snowflake SNOW after it reported second-quarter earnings slightly above our expectations. The firm is showing all the signs of healthy results in the near term and beyond. We were pleased that it signed two nine-figure deals in the quarter, indicating massive potential when other customers’ workloads go into production. In addition, we believe there is ample upside from our fair value estimate, given the early seedlings of a network effect we see in Snowflake’s smaller data marketplace business.

Despite the solid quarter and upped guidance, shares are down 8% upon results (from an already-undervalued price), likely influenced by overall concern that volatility in the firm’s lock-in free consumption-based revenue model brought on by the weaker macro, environment will have long-term implications. We see this concern in Berkshire Hathaway recently shedding Snowflake shares. However, we think this makes for a ripe opportunity to buy this growthy stock and believe the market is significantly discounting its potential by underestimating three key areas: datasphere (total data in existence) growth, how differentiated the firm’s technology is, and the powerful potential of its small but mighty data marketplace.

Snowflake reported second-quarter revenue of $869 million, an increase of 29% year over year. Product sales boasted revenue of $829 million, representing a 30% year-over-year increase—which was above the high end of management’s guide. Fortunately, the CrowdStrike outage had little effect on Snowflake consumption in the quarter, and consumption demand trended up while overall buying patterns became more predictable.