Table of Contents
a. Demand
Beat revenue estimate by 5%.
Half of the revenue acceleration was driven by emerging AI products while the other half was thanks to core business strength (which is indirectly helped by AI).
Beat product revenue estimate by 5% & Beat guide by 5.1%.
Missed remaining performance obligation estimates by 1.1%. As a reminder, more bookings are expected to come during Q4 of this year than what Snowflake usually reports. This is why RPO growth was slower than what we’ve seen amid all of the other positive demand metrics. Nothing concerning here.
Beat 125% net revenue retention (NRR) estimate by 1 point.
Missed $1M+ trailing 12-month product revenue customer estimate.
Net new customers rose by 32% Y/Y as top-of-funnel shines.
b. Profits & Margins
Missed 75.2% product GPM estimate by 50 basis points (bps; 1 basis point = 0.01%).
Beat EBIT estimate by 27%.
Beat EBIT margin estimate by 330 basis points & beat EBIT margin guidance by 340 basis points.
Beat $0.44 EPS estimate by $0.18 or 41%.
Added 334 employees so far this year (173 from buying Observe) compared to 935 over the same amount of time last year.
Missed FCF estimate by 26%.
c. Balance Sheet
$2.4B cash & equivalents; $2B long-term investments.
$2.3B convertible senior notes.
4% Y/Y diluted share count growth.
d. Annual Guidance & Valuation
Lowered product GPM guidance from 75% to 74% due to rapid AI growth. This missed 75% margin estimates.
Raised annual revenue guidance by 3.9%, which beat estimates by 3.6%. This represents a $230M raise, which is $160M larger than the $70M Q2 beat and understandably makes people materially more excited for the second half of the year.
Updated guidance represents 36% Y/Y growth compared to 29% last year and 30% the year before. There’s a fantastic acceleration unfolding, and it’s organic. The Observe acquisition is still adding just 1 point to growth expectations.
Raised 13.5% EBIT margin guidance to 14.5%, which beat 13.5% margin estimates. This means EBIT dollar guidance was raised by about 11% if we assume the change to overall revenue is in line with their product revenue bucket (by far the largest).
Good to see this despite it cutting product GPM guidance by a point.
Reiterated 23% FCF margin guidance, which met estimates. This means FCF dollar guidance was raised by 3.9%.
Snowflake remains on track to deliver positive GAAP net income in 6 quarters.
SNOW trades for 73x FCF & 151x EPS heading into tonight’s report. FCF is set to compound at a 30% clip over the next 2 years while EPS is expected to compound at a 48% clip for the next 2 years. Estimates are going to meaningfully rise while forward multiples use estimates another quarter into the future. That will help control the multiple expansion, but the stock is also up 20% after-hours and I do still think the forward multiple will expand modestly from here when taking everything together.
e. Call & Release
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