The stock market has faced severe blows in 2022 so far amid the geopolitical and economic situation. Its steep drop has incited panic and panic has further fueled the sell-off. However, taking an enormous hit are the technology stocks which have fared relatively worse. The reason is their higher uptick in the last two years as the pandemic led to a technological revolution. The tech-heavy Nasdaq is currently in the bear market territory with losses from its highs extending to nearly 30%. But amid this downfall, many cloud stocks have fallen much lower with Snowflake Inc. (SNOW) down over 60% year to date.
In September 2020, SNOW, with its stellar customer growth, pulled off the largest IPO ever by a software company, raising $3.4 billion. With an IPO price of $120, the stock then rallied to near $400 within months. However, 2022 has brought about a severe downfall in the stock. With its debatable valuations, stellar revenue growth, and bullish industry outlook, the stock has mixed reviews right now.
What’s the Latest?
On May 25, the company came out with financial results for the first quarter of fiscal 2023. The company’s earnings and revenues surpassed the consensus estimates. But the whole year’s guidance fell below the expected, which led the stock on a downtrend post the earnings release. Hence, the SNOW lost 14.14% in the pre-market to reach $114.00, falling well below its IPO price. This downtrend followed an increase of 2.42% in the prior session, which had the stock valued at $132.47 per share.
SNOW’s Earnings Highlights
The cloud-based data warehousing company posted revenues of $422.37 million, which improved by 85% YOY. The quarterly revenues surpassed the consensus estimate by 3.11%.
Growing 85% YOY was the product revenue of $394.4 million while remaining performance obligations totaled $2.6 billion.
For the quarter ended April 30, 2022, SNOW had a net revenue retention rate of 174% while the details of customers are in the chart below:
The company’s quarterly earnings stood at $0.01 a share, while analysts were expecting a loss of $0.01 per share. On the other hand, the year-ago loss was $0.24 per share on an adjusted basis.
The first quarter of fiscal 2023 witnessed a record non-GAAP adjusted free cash flow of $181 million.
Fiscal 2023 Guidance & Future Outlook
For the full-year fiscal 2023, the company provided the following guidance:
The company’s guidance for the fiscal year came below the analysts’ expectations, which caused the recent sell-off of the stock. Analysts were expecting earnings of $0.12 million on revenues of $2 billion for the full year. For the ongoing quarter, the consensus estimate is an EPS of $0.01 on revenues of $464.02 million.
Experts are of the opinion that the company’s revenue will grow by 55% in 2024 with earnings of $0.38 per share by then. The company has plenty of revenue growth potential ahead. A Morgan Stanley analyst recently said that there is a huge opportunity for the company to amass and expand more to Fortune 500 and Global 2000 customers. At the present, its Fortune 500 customers pay an average of $1.0-$3.5 million to the company. Roughly two-fifths of Fortune 500 companies use SNOW’s software in the cloud, with giants like Pfizer as its customers.
The cherry on top, data cloud, and cloud warehouse is an ever-expanding ecosystem with exponential growth in the years to come.
SNOW’s Valuation
Given the fact that the company isn’t fully profitable yet, its P/E ratio isn’t suitable for analyzing the valuation of the stock. On the other hand, the stock is currently trading at a P/S ratio of 33. Compared to its industry peers, the P/S ratio is very high, as Amazon has 2.7, Oracle 4.5, and Microsoft 9.8. However, the wider sentiment is that the stock is undervalued due to its exponential revenue growth YOY. Its strong cash position, no net debt, and huge positive free cash flow all support the idea of it being undervalued.
Furthermore, analysts have pegged its average price target above $275 a share. This represents an upside of over 110% from its current price levels.
Conclusion
While the opinions on SNOW’s current valuation are mixed with an affinity towards it being undervalued, the company does have a bullish long-term outlook. The company boasts a strong profile with positive free cash flow and a huge net revenue retention rate. With a bullish outlook of the industry and its strong, improving position near profitability, SNOW has a bright future ahead. The stock might not be a buy right now but as it nears profitability in the fundamental shift towards cloud computing, it would definitely be a good value stock to add to one’s portfolio.