Snowflake, the data cloud company, has announced its financial results for the first quarter of fiscal 2024 for the period ending April 30, 2023, revealing revenue growth amidst measured earnings guidance, causing shares to slip over 12 percent in after-hours trading.
The financial results come as the firm shared its intent to acquire Neeva, a generative AI search firm, bringing approximately 40 new employees into the Snowflake ranks.
For the first quarter results, Snowflake’s product revenue reached $590.1m, representing 50 percent year-on-year growth. Total revenue for the first quarter sat at $623.6m, up 48 percent YoY and besting previous quarter guidance of 45 percent growth. Nonetheless, this level has reduced 37 percent from the same period last financial year, after ‘slower-than-expected’ revenue growth since Easter, driven by older customers scrutinizing spending in an unsettled macroenvironment.
The strength in the quarter was driven by healthcare and manufacturing customers, with financial services customers also outperforming expectations. Booking headwinds have been experienced globally by the firm for Q1, with the exception of its North American large enterprise segment.
The company now has 373 customers with trailing 12-month product revenue greater than $1m and 590 Forbes Global 2000 customers. Net retention rate was 151 percent for the first quarter.
Guidance for the second quarter dropped, with product revenues expected between $620m-$625m representing 33-34 percent YoY growth, half that predicted from the same period in the previous financial year. A non-GAAP operating margin of two percent is predicted, with product revenues expected to be approximately $2.6bn, 34 percent growth YoY.
For the full year fiscal 2024, a non-GAAP 76 percent product gross margin, five percent operating margin and 26 percent adjusted free cash flow margin is predicted.
Snowflake expects approximately 1,000 new employees in fiscal 2024 in total, as it slows other hiring plans for the year to prioritize product and engineering hires.
In the company’s earnings call, Mike Scarpelli, CFO, Snowflake, said: “We benefited from strong consumption in February and March. It is challenging to identify a single cause of the consumption slowdown between Easter and today. Contrary to last quarter, the majority of this underperformance is driven by older customers. Although we expect this to reverse, we’re flowing these patterns through to the full year due to our lack of predictability and visibility.
“As a result, we’re reining in costs until we see a consistent change in consumption. We are still focused on investing in efficient growth with a concentration on continuing to sign new customers, ensuring these customers are migrated quickly and successfully, leveraging our PS team and partner resources and selling our newer solutions such as Snowpark and Streamlit. We still believe we can achieve 10bn of product revenue in fiscal 2029 with a better margin profile than we laid out last year.”
Frank Slootman, chairman and CEO, Snowflake, said: “We are operating in an unsettled demand environment, and we see this reflected in consumption patterns across the board. While enthusiasm for Snowflake is high, enterprises are preoccupied with costs in response to their own uncertainties. This may well continue near term, but cycles like this eventually run their course. Our conviction in the long-term opportunity remains unchanged.
“We announced our intent to acquire Neeva, a next-generation search technology powered by language models. This will enable Snowflake users and application developers to build rich search-enabled and conversational experiences. We believe Neeva will increase our opportunity to allow nontechnical users to extract value from their data.”