Is Snowflake Stock A Buy Right Now?

Snowflake Stock Fundamental Analysis

Software stocks typically trade as a multiple of forward-looking revenue growth. Software-as-a-service, or SaaS, companies, such as Salesforce.com (CRM), typically provide the highest revenue growth. Salesforce is a key marketing partner of SNOW stock.

Snowflake also partners with consulting firms such as Deloitte and information technology firms such as privately held Informatica.

Snowflake is not an SaaS company, however. Instead, it uses a consumption-based business model based on how much data its customers crunch and store.

Snowflake's revenue growth stands out. But there's less transparency and predictability than with subscription-based, recurring-revenue SaaS business models, analysts say.

"SNOW has a consumption model, whereby customers contract for a certain amount of compute and storage capacity," Mizuho Securities analyst Gregg Moskowitz said in a note. "The company only records revenue, however, as that capacity is used, so there can be a lag of several months or more before revenue recognition begins."

Snowflake is nearing an annual revenue run-rate of $1 billion. That's a big milestone for software growth companies. But SNOW stock is unprofitable on the two most common accounting standards.

Many software companies are unprofitable using GAAP earnings, or generally accepted accounting principles, which includes stock-based compensation. But they're profitable on a non-GAAP or "adjusted" earnings basis.

Snowflake Stock Gains Traction In Large Deals

Snowflake's July quarter decelerated from the previous quarter but topped analyst estimates as it gained traction with large deals in the financial services and healthcare markets.

Snowflake said July-quarter revenue jumped 104% to $272.2 million from a year earlier. Analysts had estimated Snowflake revenue of $256.5 million.

Snowflake sales soared 110% in the April quarter and 117% in the January quarter.

The provider of cloud-based data analytics software said product revenue rose 103% to $254.6 million vs. estimates of $240 million.

In addition, Snowflake said it now has 116 customers with "trailing 12-month product revenue greater than $1 million," up from 104 such customers as of April 30.

"SNOW stock ended the quarter with 12 net new $1 million-plus customers (vs. 27 last quarter, 8 a year ago), bringing total $1 million-plus customers to 116," said Cowen analyst J. Derrick Wood in a report. "Management cited strength come from rising deal sizes, strong competitive win rates, high sales productivity levels and balanced demand across geographies, customer segments and verticals. SNOW's recent vertically-focused, go-to-market initiatives are resonating particularly well in financial services and healthcare."

For the October quarter, Snowflake forecast product revenue in a range of $280 million to $285 million, above estimates of $270.5 million.

SNOW Stock Technical Analysis

Snowflake stock went public on Sept. 16, 2020, at 120 a share. At the time, software growth stocks were hot as investors sought recurring revenue amid the coronavirus emergency.

SNOW stock popped as high as 319 on the first day of trading and closed 111.6% above the IPO price at 253.93. Shares pulled back as analysts debated Snowflake's valuation.

Snowflake stock forged a cup-with-handle base over the next two months. The new base created an entry point of 301. SNOW stock blew past the buy point, hitting an all-time high of 429 on Dec. 8.

Snowflake stock hit a 12-month low of 184.71 on May 13.

The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.

Snowflake stock forged a new entry point of 328.16, just above its Sept. 17 high. But as of Nov. 22, Snowflake stock is extended and not in a buy zone.