Snowflake Inc. lost another believer after its latest earnings report, as Wolfe Research analyst Alex Zukin moved to the sidelines on the shares.
Back when he initiated coverage of the stock in April 2022, Zukin thought the company had “the best management team in software, best product and best growth rate,” with the potential to expand revenue by about 50% in calendar 2024.
“While we still see all the above as possible, the current valuation does not leave much room for error, all while the macro has worsened, the competitive landscape has changed and the growth outlook is very different,” Zukin wrote as he downgraded the stock to peer perform from outperform.
The forecast has shifted dramatically, and Zukin has questions about whether Snowflake
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will manage to grow revenue by even 30% next calendar year, after management at the data-warehousing company cut its fiscal 2024 forecast to an expectation of 34% product revenue growth from an initial target of 47% growth.
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“While the new guide appears beatable…it does not account for incremental deterioration of trends, which we believe is possible as May consumption was below plan, and we have yet to see bookings deteriorate from large enterprises in North America,” Zukin wrote.
What’s more, he worries about “growing competition with Databricks & Microsoft for workloads, mind share and dollars creates incremental execution headwinds.”
Zukin joins Rosenblatt Securities analyst Blair Abernathy, who downgraded Snowflake’s stock as well in the wake of the company’s latest earnings report and guidance disappointment.
“We expect Snowflake to continue to face a variety of growth headwinds for the balance of 2023 and, at this point, question how much the data-retention reduction issue will be fully recovered,” Abernathy wrote, as he moved to a neutral rating from his previous buy stance and cut his target price to $170 from $188.
Snowflake Chief Financial Officer Michael Scarpelli said on the company’s Wednesday afternoon earnings call that “a few of our largest customers have scrutinized Snowflake costs as they face headwinds in their own businesses,” and “some organizations have reevaluated their data-retention policies to delete stale and less valuable data.”
Shares of Snowflake sank 16.5% in Thursday’s session, though they’re still slightly positive on the year, up about 3%.
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