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    Snowflake Inc (SNOW)

    Q2 2025 Summary

    Published Feb 4, 2025, 12:10 AM UTC
    Initial Price$158.14May 1, 2024
    Final Price$124.20August 1, 2024
    Price Change$-33.94
    % Change-21.46%

    What went well

    • Strong growth in the financial services and technology verticals, with some banks growing 400% year-over-year, indicating robust customer traction and potential for continued expansion in these sectors.
    • New product offerings like Iceberg, Cortex AI, and Snowpark are gaining significant traction with customers. Iceberg is being used by over 400 accounts , and Snowpark is expected to generate about $100 million, or 3% of revenue, in fiscal '25. These products are anticipated to materially contribute to future revenue growth.
    • Stable customer buying patterns and strong bookings, leading to an increase in full-year product revenue guidance, reflecting management's confidence in the company's growth prospects. The company beat its revenue guidance and raised the full-year outlook, signaling positive momentum.

    What went wrong

    • The magnitude of Snowflake's revenue beat in Q2 was smaller than in Q1, with a 2.4% beat in Q2 compared to a higher beat in Q1, indicating a potential deceleration in growth momentum.
    • Gross margins may face pressure due to AI-related costs and GPU availability constraints. The company is incurring GPU-related expenses to meet customer demand for new features, and cloud vendors' GPU availability issues are impacting deployments. Michael Scarpelli stated, "I'm never going to say it's the bottom because I don't know what's in the future products that could have an impact on the margin."
    • Newer products like Cortex AI are not expected to contribute materially to revenue until FY2026. Michael Scarpelli mentioned that the guidance does not include material contributions from newer product features and that their impact is expected in FY2026.

    Q&A Summary

    1. Iceberg Tables and Storage Revenue
      Q: How are Iceberg tables affecting storage revenue and customer consumption?
      A: Iceberg tables are rolling out with about 400 customers using them. We haven't seen customers move storage out of Snowflake, and storage remains at about 11% of our revenue. Customers are using Iceberg with new workloads, and we're pleased with the progress.

    2. Gross Margins Outlook
      Q: Why were gross margins better this quarter, and what's the outlook?
      A: Margins were slightly better than forecasted internally but we maintain our 75% gross margin guidance for the year. Some deployments are awaiting GPUs we anticipated this quarter, impacting margins. We continue to focus on price performance leadership.

    3. Large Deals and Customer Expansion
      Q: Were the two 9-figure deals renewals with expansions or new business?
      A: Those were existing customers renewing with expansions as they plan to do more with Snowflake. It's unlikely to see a 9-figure deal from a net new customer.

    4. Impact of New Products on Revenue
      Q: How will new products contribute to future revenue amid potential headwinds?
      A: We expect AI products to begin contributing materially to revenue next year, but we can't provide specific guidance yet. Performance optimizations offer cost savings to customers, strengthening our core product.

    5. Sales Force Compensation Changes
      Q: How are sales compensation changes expected to impact future growth?
      A: We've adjusted sales compensation to focus on driving consumption growth within customers. This new approach is developing, and we believe it will have a positive impact in fiscal 2026.

    6. Consumption Trends and Guidance
      Q: What are the recent consumption trends, and how do they affect guidance?
      A: We see stable customer buying patterns and are pleased with consumption trends. We beat and raised the full-year guidance, reflecting our expectations for the second half.

    7. Competitive Landscape and AI Products
      Q: How is Snowflake positioned in the competitive landscape, especially regarding AI?
      A: In core analytics, we are the best platform, and customers recognize that. Our AI products are world-class, and we're seeing broad adoption. We're investing heavily in new products to drive revenue growth.

    8. Impact of Cybersecurity Incidents
      Q: Were there any impacts on consumption due to cybersecurity incidents or CrowdStrike outage?
      A: The cybersecurity incident had no impact on us from a consumption standpoint. The CrowdStrike outage was minimal, affecting only a few customers for a day and didn't impact us substantially.

    9. RPO Growth and Revenue
      Q: Is the gap between revenue and RPO significant, and what are the reasons?
      A: Some top customers buy monthly after consuming their contracts, which isn't fully reflected in current RPO. We have two of our top ten customers continuing to buy through the end of the year.

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