Thanks for Nothing, Wall Street: Let It Snow or Let It Go?
Snowflake pops on $6 billion Amazon news and a likely squeeze. Here’s how I’m playing it.
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On Wednesday evening, cloud data services and infrastructure provider Snowflake (SNOW) released its fiscal first-quarter financial results. For the three-month period ended April 30, Snowflake posted adjusted EPS of $0.39 (GAAP loss per share: -$0.86) on revenue of $1.391 billion. The top and adjusted bottom-line numbers both beat Wall Street expectations while that sales print was good for year-over-year growth of 33%. The sizable adjustment was made primarily for the purpose of stock-based compensation, but also to a lesser degree, the amortization of acquired intangibles and impairments related to office facility exits.
For the quarter reported, net revenue retention rate hit 126% (yes, that’s possible). Snowflake can also boast 779 customers with trailing 12-month product revenue greater than $1 million, good for 29% year-over-year growth. In addition, remaining performance obligation has now reached $9.21 billion. This is good for year-over-year growth of 38%.
CEO Sridhar Ramaswamy commented in the press release:
“Snowflake delivered a milestone quarter, with product revenue of $1.33 billion, up 34% year-over-year, marking the strongest sequential dollar growth in our history. AI continues to be a powerful tailwind for Snowflake, and Q1 marks a clear inflection point in that journey. With Cortex Code and Snowflake Intelligence, we are extending from the trusted foundation for enterprise data and context to become the control plane for the Agentic Enterprise. We are seeing strong momentum from both AI-driven acceleration of our core platform and growing adoption of our first-party AI products, positioning Snowflake to lead in this new era.”
News
In addition to the earnings release, Snowflake made two key announcements on Wednesday evening. First, the company announced it had signed a definitive agreement to acquire Natoma, an enterprise Model Context Protocol platform for AI agents. With the addition of this asset, Snowflake expects to establish a natively integrated governance and identity layer for AI agents and tool access, making it easier to securely connect and manage how AI systems interact with their enterprise applications and databases.
Adjacent to that news, Snowflake has entered into a deal with Amazon’s (AMZN) AWS to purchase $6 billion in Graviton compute and AI spend on AWS over five years. This reflects the accelerated demand that Snowflake is seeing for data and AI workloads. CEO Ramaswamy said, “With AWS, we are making it easier for enterprises to bring AI directly to governed data so they can move faster, operate with greater clarity, and create measurable impact at scale.” This is the primary reason behind the stock’s surge on Thursday.
Operations
As revenue increased 33% to $1.391 billion, the cost of that revenue grew 33.2% to $464.5 million. This left a gross profit of $926.451 million (+33.6%). GAAP operating expenses increased 9.8% to $1.2523 billion, leaving a GAAP operating loss of $326.1 million. That was an improvement from a $447.257 million loss for the year-ago period.
After accounting for interest, other income & expenses and taxes, GAAP net loss attributable to shareholders printed at $295.571 million, versus last year’s comp loss of $429.952 million. This works out to a fully diluted loss per share of $0.86, versus a loss of $1.29. After making the above-mentioned adjustments, net income printed at $147.995 million (+69.5%). This works out to a fully diluted EPS of $0.39, up from $0.24.
Guidance
For the current quarter, Snowflake is projecting product revenue of $1.415 billion to $1.42 billion, which would be good for annual growth of 30%. Additionally, adjusted operating margin is seen at 12.5%.
For the full fiscal year, product revenue is projected at $5.84 billion, up from previous guidance of $5.66 billion. This would be good for annual growth of 31% and seems to have been taken very well by Wall Street in light of the AWS news despite still being shy of consensus. Full-year adjusted operating margin is seen at 13.5% and full-year free cash flow margin is expected to land at 23%.
Fundamentals
For the period reported, Snowflake generated operating cash flow of $243.223 million (+17%). Out of this number came $10.451 million in capex spending. This left free cash flow of $232.772 million (+17%). “Out of that number” it repurchased $300 million worth of common stock. The company does not pay a cash dividend to shareholders.
Turning to the balance sheet, Snowflake ended the period with a cash position of $2.955 billion and current assets of $3.977 billion. Current liabilities add up to $3.777 billion. That would not come out to a very impressive current ratio. However, $2.852 billion of that total comes directly from deferred revenues, which is not a true financial obligation. That would put the adjusted current ratio at a very impressive 4.29.
Total assets amount to $8.554 billion. Roughly 23% of that total is labeled as either goodwill or other intangibles. This is not especially large by modern norms. Total liabilities less equity comes to $6.614 billion, including $2.282 billion in convertible senior notes. The company has no other debt on the books.
This balance sheet is in good shape. Just be cognizant that those notes could ultimately dilute the equity at some point.
Opinion
The quarter was better than fine. I do have something of an issue with the stock-based compensation and share repurchases given the lack of a cash dividend and the limited size of the print for free cash flow. It’s not like the cash position dwarfs the debt load.
I get the market celebrating the growing demand. I don’t really get the market celebrating the expected huge increase in spending on infrastructure. Thursday’s move is, in my opinion, too much for what the news or the guidance infers.
Readers will see in the chart above that SNOW has burst above its 200-day simple moving average (SMA) on Thursday on a gap-up open after having retaken its 21-day exponential moving average (EMA) and 50-day SMA in recent days. This very likely got portfolio managers and swing traders on the same team and may have forced those short the stock into a squeeze. I know half of Wall Street jumped on board Thursday morning. After the fact. Tell them “thanks for nothing.”
I would expect SNOW to at some point in the coming days to week, test that 200-day line from above. Filling the gap is a lot to ask, but a level in the low $200s is entirely possible. If SNOW is still trading in the high $230s or higher after this article hits publication, I am likely to short this stock in small to medium size.
At the time of publication, Guilfoyle was long AMZN equity.
