Software customers have been diligently working to optimize their spending in recent quarters, and Snowflake Inc. is gearing up to demonstrate whether these pressures are beginning to ease. Analyst Derrick Wood from TD Cowen suggests that while budget conditions still pose challenges, optimization headwinds have started to abate. As Snowflake prepares to release its fiscal second-quarter results, there is excitement around the possibilities of a "solid upside."
Expectations for Snowflake's Report
Earnings: According to analysts tracked by FactSet, Snowflake is anticipated to report adjusted earnings of 10 cents per share for the quarter ending in July. In the same period last year, the company reported just one cent per share.
Revenue: FactSet consensus projects $662 million in sales for Snowflake's fiscal second quarter, marking an increase from the $497 million reported in the previous year. Product sales are expected to contribute heavily to the revenue, with an estimated total of $626 million.
Stock Movement: Over the past seven earnings reports, Snowflake's stock has experienced significant fluctuations. In five of these instances, the stock saw double-digit percentage changes during the following session. However, it's worth noting that the stock has declined after four out of the seven past reports. So far this year, Snowflake shares have gained 6.3%, despite a recent decline of over 13% in the past month.
As the results draw near, all eyes are on Snowflake Inc. to determine if the optimization efforts made by software customers have truly started to pay off. With the possibility of a positive surprise in earnings and revenue, there is a hopeful anticipation for a strong performance from Snowflake in its upcoming report.
What to Keep an Eye on
Recent analysis from cloud-service providers suggests that Snowflake's upcoming report is poised for success, according to market analyst Brad Zelnick from Deutsche Bank. Zelnick believes that any recent challenges faced by Snowflake are temporary and unrelated to its competitiveness or customer demand.
While Zelnick expects a decline in net recurring revenue, he will be closely monitoring signs of improvement in bookings. Although bookings may not be the ideal indicator of future consumption revenue, they can provide insight into the company's sales momentum given the current economic climate.
Analyst Mike Cikos from Needham shares similar expectations for Snowflake's report, considering them to be reasonable, if not slightly conservative. He notes that the previous report in late May reflected a bottoming out of consumption trends, which may have influenced a more restrained outlook compared to recent positive data from June and July.
Tyler Radke from Citi Research takes a cautious but hopeful stance, suggesting that Snowflake has finished reducing its outlook. In his note to clients, titled "The Melt Is Over?", Radke expresses optimism that a strong beat in product revenue (3% or more), guidance for the fiscal third quarter on par with expectations, and a maintained full-year outlook will drive the stock price higher. Furthermore, he anticipates increased profitability due to ongoing cost discipline and moderated hiring trends.
In conclusion, despite some expected challenges, analysts remain optimistic about Snowflake's performance in the upcoming report. They believe that the company's overall outlook is favorable and that it has the potential to exceed expectations in several key areas.
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