What to Expect When Snowflake Reports Earnings

Data warehousing specialist Snowflake (NYSE: SNOW) is set to report fiscal first quarter earnings on Wednesday after market close. Snowflake was one of the hottest IPOs of last year, but the stock has been weak in recent months as investors have been shunning growth-oriented technology companies. A strong earnings release could potentially improve investor sentiment.

Here’s what to expect from Snowflake’s forthcoming quarterly report, and areas for investors to keep an eye on.

What Snowflake and Wall Street are forecasting

Snowflake’s guidance for the fiscal first quarter calls for product revenue to jump 92% to 96% to a range of $195 million to $200 million. Wall Street analysts are modeling for $212.9 million in total sales. Note that Snowflake only provides an outlook for product revenue and not total revenue, although the vast majority of sales comes from product revenue. 

The company is forecasting an adjusted operating margin of negative 23%, which would represent a modest sequential improvement from the adjusted operating margin of negative 24% last quarter.

4 core metrics to watch

There are a handful of core metrics commonly used by software-as-a-service (SaaS) companies. 

Investors will want to see if Snowflake can keep its industry-leading net revenue retention rate, which measures spending from existing customers. Snowflake’s net revenue retention rate in the fiscal fourth quarter was 168%. On the last earnings call, CFO Mike Scarpelli said that he expects the company’s net revenue retention rate to remain above 160% throughout the year. Snowflake’s usage-based model means that it makes more money as its customers increase utilization of its services.

Remaining performance obligation (RPO) is another important figure to watch. RPO represents contracted future revenue that has not been recognized yet but can be seen as a pipeline for sales. RPO more than tripled last quarter to $1.3 billion, of which 55% is expected to be recognized within the next year. Investors will want to see if Snowflake can maintain this momentum.

Another two important metrics will be total customers and the number of customers contributing over $1 million in annual revenue, which stood at 4,139 and 77 respectively, as of last quarter. Snowflake has been targeting large enterprise organizations, including adding 19 Fortune 500 companies as customers last quarter.

“Often, engagements begin with a migration of legacy data warehouse platforms,” CEO Frank Slootman said in March. “We have engaged in over 75 legacy migrations last year and we have identified many more for this year.”

Looking ahead

Snowflake also previously issued guidance for the full fiscal year 2022, with product revenue expected to be in the range of $1 billion to $1.02 billion. That forecast assumes an acceleration of migrations from legacy solutions, and Snowflake could potentially raise its guidance if it continues to build sales momentum. The company’s focus this fiscal year is to “turbocharge” its Snowflake Data Cloud while expanding the Snowflake Marketplace, according to Slootman.

After the earnings release, the company also plans to host an investor day on June 10.

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Evan Niu, CFA owns shares of Snowflake Inc. The Motley Fool owns shares of and recommends Snowflake Inc. Millennial Money is part of The Motley Fool network. Millennial Money has a disclosure policy.

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