Snowflake Inc. shares surged by the most in more than four years after the company issued a sales outlook that surpassed investors’ expectations, suggesting new products are attracting strong demand.
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, far surpassing analysts’ estimates of $890.7 million. Adjusted operating margin will be about 4%. 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 study 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.
The company’s shares were up as much as 33.8% at $172.75 on Thursday, their biggest intraday gain since Sept. 16, 2020.
As part of Snowflake’s effort to release more AI-powered products, 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 investors including General Catalyst, Citi Ventures and Rob Bearden, the former CEO of Cloudera Inc. No terms were disclosed for the acquisition.
Large language models made by AI company Anthropic will now be available on Snowflake’s platform, the company said Wednesday in a separate statement. While basic models are fine for many uses, advanced efforts such as building AI agent products are best performed with powerful models from OpenAI or Anthropic, Ramaswamy said.
The stock had plunged 35% this year through Wednesday’s close on investor sentiment that Brent Bracelin, an analyst at Piper Sandler, described as “frigid” ahead of the results. Some were concerned about slowing consumption on the platform, recent leadership changes, competition and wider economic pressures, he added.
The earnings report seemed to ease those fears. “The demand environment has stabilized and is starting to show signs of improvement,” Kirk Materne, an analyst at Evercore ISI, wrote in a note. Snowflake’s AI products are likely seeing solid early traction, he added. Tyler Radke, an analyst at Citigroup, called the results a “redemption quarter.”
The company’s expansion strategy is fueled in part by increased pressure from rivals including Databricks Inc. and cloud infrastructure providers such as 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 has worked on improving its margins through a “rigorous process to reevaluate our cost structure,” Chief Financial Officer Mike Scarpelli said during a call with analysts after the results. Ramaswamy added that the company has removed management layers and ended some internal projects.
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.
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