Can I Buy Snowflake Stock Now?

stock snowflake (eye -5.72%) The decline followed the release of the company’s fiscal 2024 fourth quarter results (for the three months ended January 31, 2024) on February 28. Despite delivering better-than-expected numbers, it fell 18% in a single session.

The reason for Snowflake’s big drop was that the company missed Wall Street estimates by a wide margin due to poor guidance. And CEO Frank Slootman’s retirement announcement appears to have further weighed on Snowflake stock.

Let’s take a look at Snowflake’s performance and outlook to see if a sharp decline could be an opportunity for smart investors to buy this cloud stock.

Snowflake’s quarterly results were well ahead of expectations, but its guidance was weak.

Snowflake reported fiscal fourth-quarter revenue of $775 million, up 32% from the same quarter last year. This number easily surpassed the consensus estimate of $761 million.

Snowflake’s bottom-line growth was also solid. Adjusted earnings rose 150% year-over-year to $0.35 per share, well ahead of the $0.18 Wall Street expected.

Snowflake reported total sales of $2.8 billion for the full year, up 36% from the previous year. Even better, full-year adjusted net income nearly quadrupled from $0.25 in fiscal 2023 to $0.98 per share. But all the good work was undone when management released the guidelines.

The company expects product sales to increase 22% to $3.25 billion in fiscal 2025. This represents a significant slowdown compared to the 38% increase in product sales recorded in fiscal 2024, to $2.67 billion. Meanwhile, analysts were expecting Snowflake to see a 30% increase in full-year product sales to $3.4 billion.

But Snowflake, which provides cloud-based solutions that allow customers to consolidate their data into a single platform and use that data to build applications or gain insights, has taken a cautious approach to guidance. The company began fiscal 2024 under difficult circumstances. Slootman said during a recent earnings conference call:

The year started against an unstable macroeconomic backdrop. We have seen depressed sentiment and customer hesitation due to lack of visibility into the business. Customers prefer a wait-and-see attitude rather than relying on long-term contract extensions. This reversed itself in the second half of the year and we started to see larger multi-year commitments.

But Chief Financial Officer Mike Scarpelli added that despite improving spending trends, they have not returned to pre-fiscal 2024 patterns. Accordingly, the company was cautious in announcing its outlook for this year.

However, this should not deter smart investors from buying the stock. Because a closer look at other key indicators shows that it could ultimately lead to stronger growth.

Downtrend appears to be a buying opportunity

Snowflake’s fiscal 2025 revenue guidance was lower than analyst estimates, but a look at the company’s remaining performance obligations (RPO) shows its long-term outlook remains intact. This metric, which represents the total value of Snowflake’s future contracts yet to be fulfilled, hit $5.2 billion last quarter, up a whopping 41% year over year.

For some perspective, Snowflake’s RPO has remained under $4 billion through the first three quarters of its fiscal year. This strong jump in RPO was driven by improvements in the company’s customer base and a surge in customer spending.

The company ended the quarter with 9,437 customers, a 22% increase over the same period last year. And the number of customers generating more than $1 million in product revenue for Snowflake was 461, an increase of 39% year-over-year. The company also ended the quarter with a net revenue retention rate of 131%.

In this metric, which compares the spending of a company’s customers during a quarter to the spending of the same customer group in the previous year’s period, a number exceeding 100% indicates that Snowflake’s customers have increased their spending. This increase in spending has also improved Snowflake’s margin profile. The company ended fiscal 2024 with an adjusted gross margin of 78%, up from 75% in the prior year.

All of this suggests that Snowflake’s slowdown is likely temporary. That’s why it may be a good idea for investors to take advantage of the downturn in these cloud stocks. That’s because it looks like it’s built for strong long-term growth, which could help it step on the gas once again.