Snowflake Stock: What To Expect For SNOW’s Q4 FY2023 Earnings Report? (NYSE:SNOW)

Introduction

Snowflake’s (NYSE:SNOW) inventory has blown cold and hot to go nowhere since I final coated it in January. Again then SNOW was buying and selling at ~$145, and this is what I wrote on the time:

Within the final week or so, SNOW’s inventory bounced up from the ~$124 stage, and I now view the $120-$170 vary because the Stage-1 base for the inventory. Presently, we’re sitting proper in the course of this base, and if the latest rally extends, SNOW may take a look at the higher finish of the bottom at $170.

As you may see on the chart above, I’ve drawn a megaphone sample on the appropriate facet. Snowflake’s inventory has turned again down from the higher trendline (drawn in yellow) for a number of months now, and this might occur once more. Therefore, a re-test of $120 (decrease finish of the bottom) is the extra probably end result for SNOW.

Supply: Snowflake Inventory: Do not Speculate, Simply Accumulate (Slowly)

The 12 months began with an incredible rally in equities, with long-duration belongings like Snowflake bouncing larger as rates of interest retreated and monetary situations loosened as much as early-2022 ranges. As you may see on the chart beneath, Snowflake rallied as much as the upper finish of its Stage-I base and even breached it quickly in late January. Nevertheless, rates of interest have climbed again to YTD highs in February, and Snowflake’s inventory has been in retreat over the previous couple of weeks.

Heading into its This autumn FY2023 earnings report on Wednesday, 1st March 2023, SNOW is as soon as once more sitting smack in the course of the Stage-I base we’ve got been speaking about not too long ago. Now, as I see it, the latest rejection from the highest of the bottom is trying like a neighborhood double high. If This autumn outcomes fail to dwell as much as expectations, I feel we may lastly see that transfer all the way down to the decrease finish of the bottom at $120. On the flip facet, a robust report may propel SNOW’s inventory again as much as the higher finish of the bottom ($170), after which possibly, we may get an actual breakout to the upside on the third time of asking!

On this observe, I’ll present a preview of Snowflake’s This autumn FY2023 report and share my rationale for investing in SNOW on the present ranges.

What Is The Earnings Forecast For Snowflake?

For This autumn FY2023, Snowflake’s administration has guided for Product revenues of $535-$540M (development of ~49% y/y, ~3% q/q), which if true, would mark a pointy deceleration in income development charges for the info cloud pioneer.

In the course of the Q3 FY2023 earnings name, Snowflake’s administration clarified that This autumn tends to have the next variety of holidays, and since 70% of Snowflake’s revenues are generated by people interacting with its platform, revenues are usually weaker on this quarter. Therefore, the potential income development deceleration we would see for This autumn isn’t an enormous concern. And I say so with the utmost confidence as a result of Snowflake’s administration has a historical past of sandbagging their steerage (& outperforming estimates).

As of the publication of Snowflake’s Q3 FY2023 earnings report, its administration’s enterprise outlook for FY2024 (2023) seemed strong, with SNOW projected to ship ~47% y/y income development in 2023 based mostly on their present consumption patterns regardless of a poor macroeconomic surroundings.

How Was SNOW’s Earlier Incomes Report?

In contrast to most different cloud software program corporations, Snowflake’s enterprise confirmed little impression because of the present macro surroundings in Q3, with SNOW beating on each the highest and backside traces. For Q3, Snowflake reported quarterly revenues and non-GAAP EPS of $557M (~66.5% y/y development) and $0.11, respectively.

Of complete revenues, Product income made up $522.8M, with skilled providers making up the remainder. In Q3, Snowflake continued profitable giant enterprise prospects at a wholesome clip while producing large development from inside its present buyer base [NRR of +165%].

Now, Snowflake’s administration highlighted weak point amongst its SMB buyer base in the course of the Q3 earnings name. Nevertheless, SMBs make up lower than 10% of complete revenues, and having little publicity to them is taking part in in Snowflake’s favor on this difficult enterprise surroundings. Moreover, practically 95% of Snowflake’s income is invoiced in US {dollars} (80% of income is generated within the US), which has shielded Snowflake’s enterprise from foreign money fluctuations.

Whereas Snowflake stays unprofitable on a GAAP foundation, it’s turning right into a free money stream producing machine, with adj. FCF margin reaching +12% in Q3. For 2023, Snowflake expects adj. FCF margin to develop to +23%, and I like how Snowflake is delivering working leverage while rising quickly at scale.

Is SNOW Anticipated To Beat Earnings?

As we famous earlier, Snowflake’s earnings date is 1st March 2023, with numbers anticipated to be launched in post-market hours. In keeping with consensus analyst estimates, Snowflake is ready to ship complete income of $575.2M for This autumn, and the vary of those estimates is from $550M to $600M.

Now, if we assume that Snowflake’s Skilled Companies income will develop according to its latest development of $2-3M per quarter, then this income ought to are available in at ~$36-37M. On this situation, SNOW’s Product income for This autumn would land at $538-539M, which is inside administration’s guided vary of $535-540M for Product revenues. Therefore, the consensus analyst estimates usually are not baking in an earnings beat for Snowflake in This autumn!

During the last three months, Snowflake has seen 32 down revisions on income from analysts with zero up revisions. Clearly, analysts usually are not feeling very assured about Snowflake’s top-line numbers going into Wednesday’s report. And I feel this pessimism is all the way down to the expansion deceleration we’ve got seen in latest quarterly reviews from cloud hyperscalers resembling AWS (AMZN) and Azure (MSFT).

Whereas the consensus outlook for Snowflake’s income is trending within the incorrect route, we’ve got a totally totally different story in growth for earnings. With Snowflake’s administration centered on optimizing without spending a dime money flows whereas driving speedy development, the earnings outlook for SNOW is getting brighter:

Primarily based on latest enterprise developments and administration’s steerage, I feel Snowflake can beat the percentages, and report a strong quarter in This autumn, with Product revenues reaching $550-565M (vs. steerage of $535-540M, i.e., a beat of $15-30M). And that is what I’ve baked into my valuation mannequin for SNOW.

Snowflake’s Honest Worth And Anticipated Returns

Regardless of utilizing considerably aggressive (however achievable) assumptions for Snowflake (optimized FCF margin: 35% and 5-yr CAGR income development: 37.5%), the inventory seems barely overvalued at present ranges. Whereas the anticipated CAGR returns of 16.25% are wholesome, I strongly want staggered accumulation in SNOW because of its wealthy valuation and lukewarm technical setup.

Backside Line

This is what I wrote in conclusion to my post-earnings analysis of Snowflake’s Q3 report:

Given a poor macroeconomic backdrop, equities [especially the long-duration, richly valued ones like Snowflake (~85x P/FCF)] may stay below strain in 2023. Greater than 90% of Snowflake’s revenues come from giant enterprises, and most of its revenues are dedicated and billed earlier than consumption. Therefore, I’m not too involved about Snowflake’s usage-based enterprise mannequin failing in a recession. That stated, SNOW’s inventory is unlikely to be proof against the broad market situations, and therefore, we may very nicely see weak point persisting on this counter for the foreseeable future.

From a technical perspective, Snowflake’s inventory isn’t inspiring in any respect regardless of its latest +20% bounce. If we do see a decisive breakdown of the $100-$120 vary, I might count on Snowflake to right a lot additional. For this reason I recommend sluggish accumulation at these costs. Nevertheless, a long-term funding does make sense right here because of robust fundamentals and an affordable valuation [SNOW is not a cheap stock]. As Warren Buffett stated, “I might somewhat purchase an amazing firm at a good value than a good firm at an amazing value“. General, I like the thought of accumulating shares in Snowflake for a 5+ years funding at ~$145 per share utilizing a DCA plan to carry out staggered shopping for over 6-12 months.

Going into SNOW’s quarterly report, I proceed to love it as a long-term funding; nonetheless, buyers ought to look to stagger their purchases over 6-12 months. Utilizing a DCA plan would eradicate all of the pre-earnings guesswork as to how the inventory would carry out after the report. That stated, I’m excited to see how Snowflake fares on this difficult market surroundings as such intervals are likely to separate the wheat from the chaff.

Key Takeaway: I fee Snowflake a “Purchase” at $145, with a robust choice for staggered accumulation.

Thanks for studying, and comfortable investing! Please share any questions, ideas, and/or issues within the feedback part beneath or DM me.