Snowflake (NYSE:SNOW), in its second quarter for fiscal 2024, outperformed expectations with non-GAAP earnings of 22 cents per share, a notable achievement compared to the projected 9 cents according to the Zacks Consensus Estimate. In comparison, the company reported earnings of 1 cent per share in the same quarter of the previous year. The quarter’s revenues stood at $674 million, exceeding the consensus projection of $662 million and showcasing a robust 35.5% increase year over year. Geographically, the revenue distribution was 79% from the Americas, 16% from EMEA, and 5% from APJ.
During this reporting period, Snowflake onboarded over 400 new Snowpark customers, and consumption witnessed a substantial 70% sequential growth. Following the announcement, Snowflake’s shares surged by 4.05% during after-hours trading. While the company’s shares have delivered a commendable 11.7% return, they trail behind the 34.6% growth of the Zacks Computer & Technology sector and the 42.8% return of the Zacks Internet Software industry, all year to date.
Revenue Breakdown
Product revenues contributed significantly, accounting for 95% of the total revenue figure, which amounted to $640.2 million—an impressive uptick of 37.3% from the previous year. Meanwhile, Professional Services and other revenues made up the remaining 5%, totaling $33.8 million, marking a year-over-year growth of 9.1%.
Notable Metrics
Snowflake observed a net revenue retention rate of 142% among existing customers for the quarter. Although this rate was slightly lower than the previous quarter’s 151% and significantly down from the year-ago quarter’s 169%, it remains a substantial figure. The company’s customer base expanded by 25% compared to the previous year, reaching a total of 8,537 customers for the quarter. Among them, 402 customers generated more than $1 million in product revenues over the trailing 12 months—an impressive 62% increase from the previous year.
Moreover, Snowflake boasted 639 Forbes Global 2000 customers, indicating a growth of 16.6%. Notably, 63% of these Global 2000 customers were utilizing Snowpark on a weekly basis.
Upcoming Ventures
Snowflake provided insights into its upcoming solutions, including Document AI and Snowflake Container Services. Document AI, currently in private preview, aims to enhance document-related capabilities. Additionally, Snowflake is incorporating large language models such as Reka and NVIDIA’s NeMo into its platform through Container Services.
Operational Insights
The non-GAAP gross margin expanded by 230 basis points year over year, reaching an impressive 79%. This growth was primarily driven by product enhancements, favorable cloud agreement pricing, scalability improvements, and an expanding enterprise clientele. While research and development expenses increased by 450 basis points as a percentage of revenues, reaching 21.4%, general and administrative expenses demonstrated a downward trend, accounting for 7.5% of revenues—a decrease of 170 basis points from the previous year. Sales and marketing expenses also decreased by 400 basis points to 37.2% year over year. In terms of total operating expenses, they were recorded at 66.2% of revenues for the quarter, a slight decline from the 67.3% reported in the same quarter of the previous year.
Operating income showcased substantial growth, amounting to $54.2 million in the current quarter compared to $17.5 million in the corresponding quarter of the previous year. This boost can be attributed to strong product margins and controlled headcount expansion.
Financial Standing
As of July 31, 2023, Snowflake held cash, cash equivalents, and short-term investments amounting to $3.95 billion, slightly lower than the $4 billion reported on April 30, 2023. The remaining performance obligations at the close of the second quarter of fiscal 2024 reached $3.54 billion, reflecting a robust 30% growth from the previous year. Snowflake anticipates that approximately 57% of these obligations will be recognized as revenue over the next 12 months. Adjusted free cash flow for the quarter amounted to $88.2 million, a decrease from the previous quarter’s $287 million.
Forward Outlook
Anticipating the third quarter of fiscal 2024, Snowflake projects product revenues to fall within the range of $670 million to $675 million, indicating a year-over-year growth of 28-29%. The projected operating margin for the same period is 4%. Analysts’ estimates for the fiscal third-quarter revenue stand at $713.76 million, marking a growth of 28.14% year over year. Expected earnings per share remain steady at 14 cents, a 27.27% increase from the previous year, as indicated by consensus estimates over the past 30 days.
Looking ahead to the entire fiscal year 2024, the company maintains its projection of a 34% year-over-year increase in product revenues, reaching $2.6 billion. Non-GAAP product gross margin and operating margin are estimated to be 76% and 5%, respectively. The non-GAAP adjusted free cash flow margin for the fiscal year is targeted at 26%. Snowflake’s ambitious future plans include achieving $10 billion in product revenues by fiscal year 2029. Additionally, the company envisions a non-GAAP gross margin of approximately 78%, accompanied by an estimated operating margin of around 25%.
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