Why did Snowflake stock drop today? Analysts question business model as growth slows

Snowflake (NYSE:SNOW) shares fell on Thursday as the data warehousing company reported first-quarter results that missed expectations, prompting some analysts to question the business model.

Stifel analyst Brad Reback noted that while the first quarter “modestly exceeded expectations,” calling out the more than 40% free cash flow margin, a challenging environment is resulting in lower usage.

“[W]e note the marginal revenue beat fell short of expectations as management highlighted some customers are consuming less than originally anticipated amidst a more challenging operating environment and shifting economic landscape,” Reback wrote in a note to clients, adding companies are now moving to “optimize” their cloud spending as a result of slowing businesses.

Reback kept the firm’s hold rating on Snowflake (SNOW) shares and lowered his per-share price target to $120 from $240, a 50% cut.

Snowflake (SNOW) shares fell nearly 4% to $127.53 in late trading, though they were off the lows of the session.

For the quarter ended April 30, Snowflake (SNOW) lost $0.53 a share, on revenue of $422.4M, up 84.5% year-over-year. Wall Street analysts expected the company to lose $0.51 a share on $413M in sales.

The Frank Slootman-led Snowflake (SNOW) said revenue from products rose 84% year-over-year to $394.4M.

Looking ahead, Snowflake (SNOW) expects its second-quarter product revenue to be between $435M and $440M, up 71%-73% year-over-year, with product revenue for its full fiscal year to be in a range of $1.89B to $1.9B, up between 65% and 67% year-over-year

The StreetAccount consensus was for second-quarter product revenue growth of 72%, CNBC reported. For fiscal 2022, the consensus was for growth of 66%. The second-quarter product revenue growth would be the lowest since Snowflake became a public company, Bloomberg reported.

On Tuesday, Rosenblatt analyst Blair Abernethy raised his rating on Snowflake’s (SNOW) stock and said the shares could see strong gains this year.