Snowflake Shares Jump on Strong Product Sales Growth Outlook

(Bloomberg) — Snowflake Inc. gained in extended trading after the company gave a better-than-expected sales outlook, suggesting newly launched products are receiving a strong reception from customers.

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Product revenue, which makes up the bulk of Snowflake’s business, will be $906 million to $911 million in the period ending in January, the company said Wednesday in a statement. Analysts, on average, predicted $890.7 million, according to data compiled by Bloomberg. Adjusted operating margin will be about 4%, while analysts expected 1.7%.

Snowflake’s software pulls in, organizes and analyzes data from a variety of sources. Under Chief Executive Officer Sridhar Ramaswamy, the company has introduced products that use generative AI and allow people to analyze more types of data. Product cohesion and ease of use is “leading us to win new logo after new logo, expand within our customer base, and displace our competition over and over again,” Ramaswamy said in the statement.

As part of this effort, Snowflake announced it has agreed to acquire Datavolo Inc., a startup that allows easier ingestion of unstructured data, which is unorganized information from other sources that often is used to fuel generative AI.

The deal will make it easier for customers to analyze more information within Snowflake and build AI-based applications on that data, Ramaswamy said in an interview. Earlier this year, Datavolo announced more than $21 million in funding from firms including General Catalyst, Citi Ventures, and Rob Bearden, the former CEO of Cloudera Inc. No terms were disclosed for the acquisition.

The shares rose about 16% in extended trading, after closing at $129.12 in New York. The stock had plunged 35% this year through Wednesday’s close, with investor sentiment “frigid,” wrote Brent Bracelin, an analyst at Piper Sandler, ahead of the results. That’s due to concerns over slowing consumption on the platform, recent leadership changes, competition and wider economic pressures, he added.

Snowflake’s product expansion strategy is fueled in part by increased pressure from rivals including Databricks Inc. and cloud infrastructure providers like Microsoft Corp. Snowflake often touts its ease-of-use of as a competitive advantage. “Our competition is a bunch of strung-together stuff where customers have to spend lots and lots on engineers to get everything to work,” Ramaswamy said when asked about Databricks.

Fiscal third-quarter product revenue increased 29% to $900.3 million, compared with the $856.6 million average estimate. Profit, excluding some items, was 20 cents per share, beating the average analyst estimate of 15 cents per share.

Snowflake now has 542 customers that spent more than $1 million over a trailing 12-month period, compared with 510 in the previous quarter. Remaining performance obligations — another key benchmark of growth — were $5.7 billion in the period ended July 31, topping analysts’ average estimate of about $5.2 billion.

(Updates with additional comments from CEO in the third paragraph.)