Snowflake Q4 FY1/24 Earnings Review

I Liked It So Much I Bought The Dip

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Price Unrelated To Fundamentals, Episode 742

by Alex King

Snowflake ($SNOW) reported its Q4 of FY1/24 on February 28th. The price dumped in a manner reminiscent of markets 100 years ago in the bear market of 2022. Now, having been no fan of SNOW historically - I thought the IPO was way hyped, which is usually a way to attract unsuspecting investors toward a name where existing investors are looking for exit liquidity at compelling prices, and I thought the management team at IPO time was in essence The Traveling Wilburys ie. on one last boondoggle before retirement - I simply thought, well, what do you expect? The thing is overvalued, fundamentals so-so and the management team have one eye on the 19th hole, of course the stock is going to take a beating sometimes.

Except then I did the work and concluded, well, all is not as it seems. Because, one, the fundamentals are solid and it is possible that growth starts to accelerate soon after that inexorable slowing since the 2021 IPO; and because, two, the CEO stood down to spend more time at the golf course and the company hired an ex-Google insider who I think may be on a mission to prove something. So now SNOW is looking a little interesting. I bought a tiny starter position in the name just before the close today, as alerted ahead of time in chat.

Here’s the headline numbers as of this quarter. The company doesn't provide a full revenue guide for the following quarter, it only guides on product revenue. So there's no guidance column here, unlike pretty much every other stock we cover.

In short:

• Revenue growth continues to fall - but look at the only-slight deceleration this quarter vs last quarter. Could change tomorrow but that suggests that perhaps a trough in growth rates is approaching. If the company can deliver accelerating revenue growth, that can be an upside catalyst for the name.
• EBITDA margins continue to climb - now 6.9% on a TTM basis vs. 4.6% three quarters back.
• TTM unlevered pretax free cashflow margins holding steady at 16%. That's not wonderful but in the context of 36% TTM revenue growth it's OK. And the fact that cashflow margins exceed accounting profit margins by so much tells you that (1) the company bills a lot upfront and (2) it is careful with capex. Good on both fronts.
• $4.8bn of net cash on the balance sheet says the company can probably survive a bad quarter or nine.

Let's turn to the stock price outlook, more detailed financials, valuation analysis, and our rating.

Read on!