Prospective Snowflake Price Target as Shares Pop on Earnings

In full disclosure, readers will see a long position in Snowflake (SNOW) stated below. So as not to mislead, that is a small overnight trade made with the intention to grasp onto an overnight move and had as much to do with the great quarter that Palantir (PLTR) had posted (though the two are far from an apples-to-apples comparison) as anything else.

That position, which will be covered on Thursday morning, was not an investment made with a chunk of capital with any conviction. I am not claiming some giant victory, on Thursday, just a nice trade.

On Wednesday evening, Snowflake, the self-described AI data cloud company, released the firm’s fiscal second quarter financial results. For the three-month period ending July 31, Snowflake posted an adjusted EPS of $0.62 (GAAP EPS: -$0.55) on revenue of $1.547 billion. These numbers easily exceeded expectations. Both the adjusted and GAAP EPS prints beat Wall Street by a couple of dimes per share. The revenue number, good for year-over-year growth of 36%, beat expectations by about $70 million.

Reflecting on the period, CEO Sridhar Ramaswamy commented in the press release:

“Snowflake delivered another strong quarter, with product revenue of $1.49 billion, up 37% year-over-year, as Snowflake continues to power the enterprise AI revolution. AI continues to compound our advantages, creating a flywheel effect across the business. CoWork and CoCo are driving transformational outcomes for our customers, while fueling rapid adoption, user growth, new workloads and overall platform consumption. Our rapid pace of innovation, tight go-to-market execution, and operational discipline position us well to capture the opportunity ahead. The Agentic Enterprise runs on Snowflake, and we’re just getting started.”

Operations

While net revenue increased 36% to $1.547 billion, gross profit increased 34.2% to $1.037 billion as gross margin dropped from 67.5% to an even 67%. Total GAAP operating expenses increased 16.8%, leaving a GAAP operating income/loss of -$262.967 million, up from -$340.276 million. After adjustments primarily for stock-based compensation and the amortization of acquired intangibles, operating income became $236.985 million (+85.8%).

After accounting for interest, other income and expenses and taxes, GAAP net income/loss improved to -$191.72 million from -$298.017 million. That works out to a fully diluted GAAP EPS of -$0.55, up from the year-ago comp of -$0.89. Once adjusted, net income increased 82% and the fully diluted EPS printed at $0.62, up from $0.36.

Guidance

For the current quarter, Snowflake is projecting product revenue of $1.588 billion to $1.593 billion, which would be good for annual growth of 37% to 38%. Consensus for total revenue was for $1.57 billion, so this is a beat. Adjusted operating margin is seen at 15.5%.

For the full fiscal year, SNOW sees product revenue of $6.07 billion, which would be good for annual growth of 36% and is close to the consensus view for total revenue of $6.1 billion. I see it as less clear that this is a beat, but Wall Street apparently loves it. Full year adjusted gross margin is projected at 74%, as the firm’s adjusted operating margin is seen at 14.5%.

Fundamentals

For the period reported, Snowflake generated operating cash flow of $91.357 million. Out of that number came capex spending of $7.554 million, leaving free cash flow of $83.803 million (+44% year over year). The firm did not return capital to shareholders during the period.

Turning to the balance sheet, SNOW ended the period reported with a cash position of $2.345 billion and current assets of $3.494 billion. Current liabilities are running at $3.722 billion, but that’s misleading. This total includes no short-term debt and deferred revenues (which are not true financial obligations) of $2.568 billion. That puts the firm’s current ratio (adjusted for those deferred revenues) at a beefy 3.03.

Total assets amount to $8.69 billion, of which 23.8% is labeled as either goodwill or other intangibles. That’s not a dealbreaker for me. Total liabilities less equity comes to $6.54 billion. That includes long-term debt in the firm of convertible senior notes of $2.284 billion. The number there does not scare me as the firm has enough cash on hand to cover that debt in its entirety. The fact that it could eventually dilute the equity is a reality. Food for thought. Again, not a dealbreaker.

Opinion

Snowflake posted a very nice quarter. The guidance is positive, but probably not worthy of the pop in the share price seen on Thursday morning. I did tell you that I will be selling my overnight rental position on Thursday morning. Cash flows are healthy. The balance sheet is in solid shape. Let’s go to the chart:

Readers will note that shares of SNOW had tested the lower trendline support of this Schiff pitchfork model ahead of earnings and has now retaken the central trendline of the model. Fellow super-geeks will ask why I used a Schiff model and not an Andres model for my pitchfork. The simple answer is that the trend, as impressive as it has been, has been too gentle for the regular pitchfork. This model simply presented more believable results. Think that’s arbitrary? The guys who write the algorithms that control price discovery chart these stocks the same way I do, so no, this is not arbitrary.

As for the indicators that I find most useful, relative strength has spiked and has kissed technically overbought levels on Thursday morning. As for the daily MACD, we are getting bullish signals as the nine-day EMA has gone positive and the 12-day EMA looks ready to cross above the 26-day EMA. Based on these technicals and the above fundamentals, if I had been long the stock for more than a half a day, my target price would be $386 based on a $322 pivot (21-day EMA).

At the time of publication, Guilfoyle was long SNOW and PLTR equity.