Yahoo Finance Snowflake Projects Strong Growth With Focus on AI Products
(Bloomberg) -- Snowflake Inc. gave a sales outlook for the current quarter that beat estimates, suggesting that new artificial intelligence-oriented products can help accelerate growth.
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Product revenue — which makes up the bulk of Snowflake’s business — will be $805 million to $810 million in the period ending in July, the company said Wednesday in a statement. Analysts, on average, predicted $787.5 million, according to data compiled by Bloomberg. The company also raised its fiscal year product sales forecast to $3.3 billion from $3.25 billion.
This is the first full quarter that Sridhar Ramaswamy, a former Google executive and co-founder of search startup Neeva, has been Snowflake’s chief executive officer. He needs to reaccelerate growth at the maker of cloud-based analytics software while fending off competition from rivals including Databricks Inc.
While the outlook was stronger than expected, it still represents slowing revenue growth, and may not appease investors who are bearish on the stock, wrote Kirk Materne, an analyst at Evercore ISI. The guidance reflects uncertainty about customer consumption in the second half of the year, said Mandeep Singh, an analyst at Bloomberg Intelligence.
The shares gained about 4% in extended trading after closing at $163.34 in New York. The stock has dropped 18% this year, as investors have been wary about the executive transition and concerned about the sales growth slowdown.
Read More: Databricks CEO Says Rivalry Spurred Executive Swap at Snowflake
One pillar of Ramaswamy’s strategy has been to invest in generative AI-oriented products. Snowflake was in talks to acquire generative startup Reka AI for more than $1 billion dollars, but the talks fizzled without a deal. Snowflake released its own large language model in April, and lets customers use third-party AI models on their data within the company’s platform.
“Our AI products, now generally available, are generating strong customer interest,” Ramaswamy said in the statement. “They will help our customers deliver effective and efficient AI-powered experiences faster than ever.”
The company’s annual conference in June “should provide a better understanding of new CEO Ramaswamy’s long-term vision,” wrote Tyler Radke, an analyst at Citigroup Inc., wrote before the results were released.
Snowflake also announced it would “acquire certain technology assets and hire key employees,” from AI-oriented startup TruEra, which last raised $25 million in 2022. About 35 employees will join, Snowflake Chief Financial Officer Mike Scarpelli said during a conference call after the results were released. Terms weren’t disclosed. As the field of generative AI has grown in popularity and hype, several big tech companies have rushed to partner with or acquire startups working on the technology.
In the fiscal first quarter, product revenue increased 34% to $789.6 million, compared with the $749 million expected by analysts. Profit, excluding some items, was 14 cents a share. Analysts estimated 19 cents.
Profitability is being affected by the costs of graphics processing units as the company invests in new AI initiatives, Scarpelli said. “We view these investments as key to unlocking additional revenue opportunities.”
Snowflake now has 485 customers who spent more than $1 million over a trailing 12-month period, up from 461 the previous quarter. Remaining performance obligations — another key benchmark of growth — were $5 billion in the period ended April 30, topping analysts’ average estimate.
The company had 7,296 workers at the end of the quarter, almost 1,000 more than the same period a year earlier. Many other tech companies have been cutting jobs during the past year.
(Updates with CFO comments beginning in the ninth paragraph.)
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