On Thursday, UBS updated its stance on Snowflake Inc . (NYSE: NYSE:SNOW), increasing the price target to $190 from the previous $185, while maintaining a Neutral rating on the stock. The adjustment follows Snowflake's reported growth, which stands out in the software sector.
The company's 34% growth rate is highlighted as one of the highest in the industry, with a recent performance exceeding expectations by 5%, a notable difference from the average 2-3% beat. Snowflake has attributed this success to robust usage trends in February and March, significant large deal bookings with a 31% increase in contracted remaining performance obligations (cRPO), and a broad-based strength across its operations.
However, UBS pointed out that if not for an $11 million benefit from the leap year, Snowflake's sequential revenue growth in the first quarter of April would have been $41 million. This figure is only slightly higher than the $35 million reported in the same quarter of the previous year, which had been impacted by particularly weak performance in April and May 2023.
The guidance for the second quarter ending in July suggests a conservative $20 million in sequential growth, which is low by historical standards but somewhat mitigated when adjusted for the leap year effect. This cautious outlook may be due to a potential normalization following a spike in usage driven by large customer migrations in the earlier months of the year.
Additionally, Snowflake anticipates that the impact of storage discounting, which created a roughly $5 million sequential revenue headwind, could have a more pronounced effect in the upcoming second quarter. This factor, along with the observed trends, contributes to the tempered expectations for near-term growth.
InvestingPro Insights
With Snowflake Inc. (NYSE: SNOW) continuing to make headlines for its robust growth in the software sector, it's crucial to consider the financial health and market sentiment surrounding the company. According to InvestingPro data, Snowflake boasts a market capitalization of $54.73 billion and has demonstrated a significant revenue growth of 35.86% over the last twelve months as of Q4 2024. Despite not being profitable during this period, with an operating income margin of -39.01%, the company's gross profit margin stands strong at 67.98%, reflecting its ability to maintain profitability on its core services.
Investors should note that while Snowflake's price has seen a decline of 28.78% over the last three months, analysts predict the company will be profitable this year, which could potentially signal a turnaround in its stock performance. This is further supported by the fact that Snowflake holds more cash than debt on its balance sheet, and its liquid assets exceed short-term obligations, as highlighted by two InvestingPro Tips. For those seeking a more in-depth analysis, InvestingPro offers additional insights with a total of 8 tips available for Snowflake, which can be explored further at: https://www.investing.com/pro/SNOW.
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