- Sowflake expects 61% Q3 and 67% 2023 revenue growth.
- Top line revenue beat estimates by 6.3%, as the company posted $466.3 million.
- After the earnings, analysts stabilized the price target to around $197 per share.
Snowflake Inc. (NYSE:SNOW) is trading 19%+ pre-open based on its second quarter earnings post. The company beat Q2 revenue estimates by 6.3% and added 40 new 1 million+ contributing customers to the existing 206 from the previous quarter. Analysts and investors are also reacting to the issued guidance, as the company expects $1.91 billion in 2023 revenue, implying a 67.5% growth YoY. Q3 revenue is estimated to jump to $502.5 million, representing 61% growth YoY.
Remaining performance obligations are a metric that is indicative of future income, and the company posted $2.7 billion in RPOs which shows that Snowflake has created a more stable business environment.
The Price Targets Stabilized Around $197
After the report, 31 analysts covering the stock have updated their price targets, with the average price target stabilizing around $197 per share. Analyst targets haven't changed that much since Q1, however the latest earnings gave the needed assurance that the business is executing within expectations in an environment where more companies are having difficulties reaching targets.
The chart below shows the stock price in relation to analysts' 1-year price targets and is a useful insight for context:
A young company like Sonwflake still has to prove that it can breakeven, so investors are aware that the company needs time to develop the business. This makes the current period somewhat uncertain for the equity, which is why we see a large disagreement among analysts for the target price. We can see that the most bullish analyst has a $280 target, while the most bearish prices it at $110.
A wide range of targets can indicate a volatile stock, and investors may have to wait a longer time before reaching their goals. Traders, on the other hand, can use the volatility to amplify increases in their positions if they get the trend right.
What This Means For Investors
Snowflake managed to post decent earnings and a high growth outlook, giving investors a baseline for the price target and a bump in the stock price. The company is executing within expectations, and in this economic environment that can be a good signal for company resilience and a valuable business model.
The company is still high risk, and trading at high valuation multiples, which means that analysts are still expecting very high growth rates to persist in the future. Should growth slump before the company reaches around 25x PE, or annual net income of around $2.4 billion, investors may feel pressured to decrease the market value.
To gain some additional insight, we need to consider other information, too. Case in point: We've spotted 2 warning signs for Snowflake you should be aware of.
The composition of investors for Snowflake is also important as it can give us hints to the possible strategies utilized by different investor groups, so it might be good to check the ownership structure of Snowflake.
What are the risks and opportunities for Snowflake?
Trading at 32.4% below our estimate of its fair value
Revenue is forecast to grow 22.99% per year
Shareholders have been diluted in the past year
Significant insider selling over the past 3 months
Currently unprofitable and not forecast to become profitable over the next 3 years
Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Goran is an Equity Analyst and Writer at Simply Wall St over 4 years of experience in financial analysis and company research. Personally, Goran has over 4 years of experience in financial analysis and company research, where he previously worked in a seed-stage startup as a capital markets research analyst and product lead and developed a financial data platform for equity investors.