Down 70% from All-Time Highs, Is Snowflake Stock a Buy Ahead of Earnings?

Valued at a market cap of $41.4 billion, Snowflake (SNOW) is a cloud-based data warehousing company that provides enterprises with a platform for data processing, analytics, and storage. Its robust architecture provides Snowflake with a competitive moat, as it can easily separate compute and storage functions, enabling clients to scale their data requirements effectively while optimizing costs. 

The Snowflake Data Marketplace allows users to access live datasets from their accounts. It has successfully leveraged cloud technology to eliminate data silos and simplify the data management process. Companies across sectors such as finance, healthcare, communications, and retail use Snowflake’s portfolio of offerings. 

Snowflake’s diversified product offerings allowed the company to grow sales from $265 million in fiscal 2020 (ended in January) to $3.20 billion in the last 12 months. Despite its strong top-line growth, SNOW stock is down about 70% from all-time highs, underperforming the broader markets significantly since its initial public offering (IPO) five years back. Let’s see if Snowflake can surprise Wall Street to the upside with its upcoming earnings release and stage a recovery in the final stretch of 2024. 

What to Expect from Snowflake in Fiscal Q3

Snowflake is set to report earnings after the closing bell on Wednesday, Nov. 20. Analysts tracking Snowflake expect the company to report revenue of $897 million in fiscal Q3 of 2025, on adjusted earnings per share of $0.15. In the year-ago period, Snowflake reported revenue of $734.2 million and adjusted earnings per share of $0.25. This suggests that while revenue growth is forecast at 22%, non-GAAP earnings are expected to decline by 40% year over year. 

One reason for Snowflake’s tepid performance in 2024 is its decelerating revenue growth. For instance, in the year-ago quarter, its sales were up 35.5% year over year. 

However, during its Q2 earnings call, Snowflake raised its revenue guidance for fiscal 2025, as it continues attracting enterprises to its cloud platform driven by artificial intelligence (AI) capabilities. It now expects product sales of $3.36 billion in fiscal 2025, up from a prior forecast of $3.30 billion. 

SNOW stock still fell after the report, as the company did not pair its higher revenue guidance with an expected rise in profitability. The company was also linked with a major data breach in early 2024, as a substantial amount of user data was stolen from AT&T (T) and Live Nation (LYV). 

In recent quarters, Snowflake has been investing heavily in developing its own large language model (LLM) called Snowflake Artic. It has partnered with Meta Platforms (META) to integrate the latter’s Llama models and boost customer engagement across its cloud platform. According to analysts, Snowflake's widening AI portfolio could reignite revenue growth and improve customer retention rates. 

Is SNOW Stock Undervalued?

While Snowflake stock is grossly underperforming the broader markets, the enterprise-facing data heavyweight remains a top investment choice, given its growing free cash flow. In the last 12 months, Snowflake’s free cash flow has risen to $847.5 million, up from $813 million in fiscal 2024 and sharply higher than $520.5 million in fiscal 2023. 

With a free cash flow margin of 26.4%, Snowflake stock trades at a price-to-FCF ratio of 48.4x. Analysts expect Snowflake to end fiscal 2026 with sales of $4.34 billion. If the company can increase its FCF margin to 30%, its free cash flow in fiscal 2026 should be around $1.3 billion. If SNOW stock is priced at 50 times trailing FCF, it should trade at a market cap of $65 billion, indicating an upside potential of 50% from current levels over the next two years. 

Out of the 41 analysts covering Snowflake stock, 25 recommend “strong buy,” three recommend “moderate buy,” 11 recommend “hold,” and two recommend “strong sell.” The average target price for SNOW stock is $169.69, indicating an upside potential of 41% from current levels. 

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On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.