On Thursday, Goldman Sachs (NYSE:GS) maintained its Conviction Buy rating on Snowflake Inc . (NYSE: NYSE:SNOW) stock with a price target of $220.00.
Following the company's solid second-quarter financial results, the firm highlighted Snowflake's performance, which included product revenue exceeding consensus estimates by 2% and maintaining a 30% growth rate.
The company also reported a 30% increase in current remaining performance obligations (cRPO), consistent with the previous quarter's 31% rise.
Despite outperforming operation margin (OpM) and free cash flow margin (FCFM) by approximately 200 basis points, Snowflake's stock was trading 8% lower after hours.
This decline was attributed to a lower second-quarter revenue beat and concerns over the company's conservative initial full-year setup amid a CEO transition.
Additionally, there was a notable discrepancy between the 30% cRPO growth and 48% reported performance obligations (RPO) growth compared to the forecasted low-20s revenue growth for the second half of the year.
Goldman Sachs emphasized the company's stability in consumption and optimization trends, which have persisted through mid-August. This stability is supported by the lowest sequential deceleration in the dollar-based net expansion rate (DBNER) seen in over two years. Snowflake also secured two nine-figure expansion deals in the quarter, signaling its continued relevance in the enterprise market.
Looking ahead to the second half of the year, investors are expected to appreciate Snowflake's ability to sustain over 30% growth. The introduction of new products under the Cortex AI banner could drive growth beyond expectations for fiscal year 2026.
The firm noted that Snowflake's stock is trading at 10 times enterprise value to sales (EV/S) for the calendar year 2025 and 35 times enterprise value to free cash flow (EV/FCF) in after-hours trading. This valuation is considered favorable when compared to peers such as Datadog (NASDAQ:DDOG) and ServiceNow (NYSE:NOW), given Snowflake's similar 'Rule of' profiles.
Goldman Sachs concluded that if product revenue growth remains stable or accelerates, Snowflake's stock could experience a positive re-rating, which is not currently reflected in the price target.
In other recent news, Snowflake Inc. reported a significant rise in its product revenue, reaching $829 million, a 29.5% increase year over year, leading to an upward revision of the fiscal year 2025 product revenue guidance to $3.356 billion.
Despite surpassing consensus estimates, Guggenheim maintained a neutral rating on Snowflake due to a slowdown in New Annual Recurring Revenue growth. Jefferies, while acknowledging Snowflake's solid financial performance, reduced the company's price target to $145, maintaining a Buy rating.
Evercore ISI reiterated an Outperform rating, expressing optimism in Snowflake's future growth backed by a substantial increase in remaining performance obligations (RPO), which climbed to $5.2 billion, a 48% rise. Despite the robust performance, BTIG maintained a Neutral rating on Snowflake's stock due to competitive pressures.
DA Davidson revised Snowflake's price target downward to $175, but continued to endorse the stock with a Buy rating. These recent developments provide a glimpse into the varying perspectives of different analyst firms on Snowflake's performance and future prospects.
InvestingPro Insights
As investors digest the analysis by Goldman Sachs on Snowflake Inc. (NYSE: SNOW), it's pertinent to consider additional financial metrics and insights that could influence investment decisions. According to real-time data from InvestingPro, Snowflake has a market capitalization of approximately $45.22 billion. Despite the company not being profitable over the last twelve months, with a negative P/E ratio of -47.96, its revenue growth remains strong at 32.85% for the same period, underscoring its potential for future profitability, as suggested by analysts.
InvestingPro Tips reveal that Snowflake holds more cash than debt on its balance sheet and has liquid assets that exceed short-term obligations, providing financial stability and flexibility. However, the stock is trading at a high revenue valuation multiple, with a Price/Book ratio of 9.92 as of the last twelve months, indicating a premium valuation in the market. With the stock having taken a significant hit over the last six months, down by 40.14%, investors may find an opportunity if they believe in the company's long-term growth narrative, especially considering that analysts predict Snowflake will become profitable this year.
For those seeking further insights, InvestingPro offers additional tips on Snowflake, providing a deeper dive into the company's financial health and future prospects. Such information could be crucial in determining whether Snowflake's current market position aligns with investors' portfolio strategies.
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