Snowflake Inc. Shows Improvement in Consumption-oriented Software Industry

Snowflake Inc., a consumption-oriented software business, has recently received positive attention for its improved performance. The company demonstrated a stabilizing consumption environment by exceeding earnings expectations, leading to a 7% increase in Snowflake shares during premarket trading on Thursday.

Analyst Mike Cikos from Needham highlighted the positive impact of a stabilized/improving consumption environment on revenue in the short term. Additionally, he emphasized Snowflake's growing range of new product introductions, which are expected to yield long-term benefits. Cikos raised his price target for Snowflake to $225 from $216 while maintaining a buy rating on the stock.

Snowflake's outlook surpassed expectations, prompting Truist Securities analyst Joel Fishbein to consider it potentially conservative. Fishbein noted that Snowflake has devoted significant resources to product investments in recent years, with many of these capabilities soon becoming available to a wider customer base in the next few quarters. Fishbein increased his price target to $210 from $200 and maintained his buy rating on Snowflake's stock.

However, Bernstein analyst Mark Moerdler provided a more cautious perspective, stating that Snowflake's impressive performance must be considered within the context of lowered expectations.

Snowflake's Ability to Outperform Raises Concerns

With the recent release of Snowflake's financial results, concerns about the company's ability to outperform its long-term revenue guidance have arisen. The leading indicators for this quarter were still weak, as deferred revenue met expectations and remaining performance obligations fell short by nearly 5%. This has led the company to forecast a further 4-5% deceleration in revenue for the next quarter. Even if Snowflake surpasses expectations by a significant margin, it would only align with the prior consensus.

Moerdler's View: The Trough Isn't Here Yet

According to analyst Moerdler, he believes that Snowflake has not yet reached its lowest point. Given the current circumstances, he rates the stock at market perform and sets a target price of $160.

DiFucci Asks: Does It Sound Better or Look the Same?

John DiFucci, Guggenheim analyst, titles his note to clients with this thought-provoking question. Based on field checks and recent software results, DiFucci argues that the IT spending environment is not improving. Furthermore, he anticipates a potential deterioration in the macro backdrop up until fiscal year 2024. However, DiFucci recalls the advice of a wise man: when interest rates decrease, it's time to invest in growth. With Snowflake being a growth stock, this recent raise in annual guidance is seen as a positive development.

Despite the optimism, DiFucci maintains a sell rating on the stock. Nevertheless, he raises his price target from $105 to $120, reflecting his revised outlook.