• Following the release of third-quarter results and the announcement that product revenue for the following quarter would slow down, Snowflake stock (NYSE:SNOW) reversed earlier losses and increased by almost 3% in early trading on Thursday. This prompted several analysts to defend the data warehouse company.

Derrick Wood, a Cowen analyst who rates Snowflake as outperform but has reduced the stock’s price objective from $235 to $225, said the projection was “disappointing,” but that the company’s strength in larger companies could offer some protection.

The strength in large organizations, which is a more resilient cohort and essential to its [long-term] growth, pleased us even though the [fourth-quarter] forecast was somewhat disappointing, and Snowflake is not immune to macro conditions, Wood wrote in a note to clients.

Developments Around Snowflake Stock Outlook

Wood also mentioned that there is an opportunity for an “upside” to long-term goals and that free cash flow margins are still attractive given their upward trend. 

The Frank Slootman-led Snowflake reported $557 million in sales for the three months that ended October 31, an increase of 67% year over year, including $522.8 million in product revenue. The majority of experts predicted that Snowflake will generate $538.91M in revenue and earn an adjusted 5 cents per share.

Snowflake stated that it anticipates product revenue to be between $535M and $540M in the upcoming quarter, representing a growth rate of 49% to 50% year over year, or significantly less than the 67% the business experienced in the third quarter.

Snowflake has stated that it anticipates adjusted operating margins to be 1% in the future quarter. In contrast to projections of $1.92 billion, the full-year revenue is predicted to be between $1.919 and $1.924 billion. However, the company increased its forecast for adjusted operating margins for the entire year from 2% to 3%.

According to Bracelin, “having a 100% consumption-driven business model may impact growth during periods of economic weakness, but we consider recessionary headwinds to be a transitory drag on growth offset by additional lands and expanding use cases over the long run.”

The company is impressed by Snowflake’s ability to scale even as free cash flow margins increase, according to Truist analyst Joel P. Fishbein, who has a buy rating and a $200 price objective on Snowflake shares.

Fishbein says that the outlook “may turn out to be conservative based on management’s past strategy, and we still think that, despite problems with the economy as a whole, SNOW could become the fastest software company in history to reach $5 billion in sales.”

Investment company Bernstein began covering Snowflake last month and noted that, despite the company’s rapid expansion, it could be challenging to displace established cloud competitors. 

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