Snowflake released an earnings report this week, and its performance looks very good, with revenue more than tripled year-on-year.
However, although the company's fourth-quarter revenue increased by 117% to $190.5 million, it is clearly not good enough for investors. Since the report was released after hours on Wednesday, investors have caused the company's stock to plummet.
This is similar to the reaction Salesforce received from Wall Street last week after announcing a positive earnings report. Snowflake's stock closed down about 4% today, a rebound from its midday low (down nearly 12% at the time).
Why is it down? Wall Street’s response to earnings may be more dependent on what the company will do next than its recent performance. But Snowflake's guidance for the current quarter also appears to be strong, with estimated revenue of $195 million to $200 million, which is in line with analyst expectations.
Sounds great, right? Obviously, for investors in certain companies, meeting analyst expectations is not good enough. You will find that it did not exceed the prescribed expectations, so the result must be terrible. I'm not sure how to meet expectations is as good as missed, but you are there.
Of course, it is worth noting that technology stocks have fallen sharply so far in 2021. As my colleague Alex Wilhelm reported this morning, this trend will only worsen this week. Considering that the high-tech Nasdaq Index has fallen 11.4% from its 52-week high, so maybe investors are whipping everyone and Snowflake is only being punished.
Snowflake CEO Frank Slootman pointed out in this week's earnings conference call that Snowflake is well positioned. This fact proves that his company has eliminated the data limitations of the local infrastructure. The beauty of the cloud is unlimited resources, which forces the company to help customers manage consumption rather than usage, and this evolution is beneficial to Snowflake.
"The biggest change in the paradigm is that historically, in local data centers, people have to manage capacity. Now, they no longer manage capacity, but need to manage consumption. For everyone (not everyone, but most people) ) And people in the public cloud, this is new. I'm obviously used to the concept of consumption, because it also applies to infrastructure clouds." Slootman said on the earnings call. According to the company, Snowflake had to manage expectations, which translated into a dozen customers who paid $5 million or more in the past 12 months. In any case, this is a big change. It is also obvious that despite people's preference for cloud technology, the amount of transferred data still accounts for only a small part of the overall workload of the enterprise, which means that Snowflake has a lot of growth opportunities.
More importantly, Snowflake executives pointed out that customers will spend a lot of time before transferring data to the Snowflake data lake (but before pressing the consumer button). This means that as long as customers continue to move data to Snowflake's platform, even if it takes time for new customers to start using it, they will still pay more over time.
So why didn't Snowflake's quarterly percentage growth rate expand? Well, as the company scales up, as the law of large numbers begins, it becomes more and more difficult to maintain those dizzying percentage growth numbers.
I am not here to tell Wall Street investors how to do their work, more than I expect them to tell me how to do my work. However, when you look at the company's overall financial situation, the untapped cloud potential, and the nature of Snowflake's billing method, it is difficult to be optimistic about the company's prospects no matter how investors react in the short term.