Why Snowflake Stock Slipped Today

Actions of Snowflake (SNOW -13.71%) fell on Thursday morning after the cloud-based data storage company posted quarterly results that beat analysts’ estimates but didn’t appear to be enough to satisfy investors. Investors also appeared disappointed by the company’s declining profits and management guidance.

As of 11:10 a.m. ET, the stock is down 13%.

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A good quarter (but not good enough).

For Snowflake’s fiscal 2025 second quarter, which ended July 31, product revenue rose 30% to $829.3 million, a modest deceleration from the fiscal first quarter. Total revenue, which also includes professional services, rose 29% to $868.8 million, beating the consensus estimate of $851.3 million.

In a difficult environment for cloud software companies, Snowflake is still seeing solid growth and reported a net revenue retention rate of 127%. Remaining performance obligations rose 48% to $5.2 billion.

However, the company posted another big loss on a generally accepted accounting principles (GAAP) basis, with an operating loss of $355.3 million — higher than the $285.4 million loss in the year-ago period. After adjusting for items such as stock-based compensation, adjusted earnings per share fell from $0.22 to $0.18, though that beat the consensus estimate of $0.16.

“The streak was marked by innovation and product delivery and great traction in the early stages of our new AI products,” CEO Sridhar Ramaswamy said in the earnings release.

What’s next for Snowflake

Looking ahead to the fiscal third quarter, the company expects revenue growth to slow. Management guided product revenue in the range of $850 million to $855 million, which would equate to growth of about 22%. It also forecast an adjusted operating margin of 3%.

For the full year, management raised its product revenue estimate to $3.356 billion — up about 26% — but that implies a moderate deceleration in the second half.

With slowing growth, excessive stock-based compensation expense and large GAAP losses, Snowflake still needs to prove to investors that it can be profitable. While his valuation is starting to look more reasonable, this sell-off is understandable.