Shares of Snowflake (NYSE: SNOW) were sliding Thursday morning after the cloud-based data warehousing company posted quarterly results that beat analysts' estimates, but didn't seem to be enough to please investors. Investors also appeared disappointed with the company's falling profits and management's guidance.
As of 11:10 a.m. ET, the stock was down by 13%.
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A good (but not good enough) quarter
For Snowflake's fiscal 2025 second quarter, which ended July 31, product revenue grew by 30% to $829.3 million, a modest deceleration from the fiscal first quarter. Overall revenue, which also includes professional services, rose 29% to $868.8 million, which beat the consensus estimate of $851.3 million.
In a difficult environment for cloud software companies, Snowflake is still delivering solid growth, and it reported a net revenue retention rate of 127%. Its remaining performance obligations were up by 48% to $5.2 billion.
However, the company posted another wide loss on a generally accepted accounting principles (GAAP) basis, with an operating loss of $355.3 million -- worse than its $285.4 million loss in the prior-year period. After adjusting for items like stock-based compensation, adjusted earnings per share fell from $0.22 to $0.18, though that topped the consensus estimate of $0.16.
"The quarter was hallmarked by innovation and product delivery, and great traction in the early stages of our new AI products," said CEO Sridhar Ramaswamy in the earnings release.
What's next for Snowflake
Looking ahead to the fiscal third quarter, the company expects revenue growth to decelerate. Management guided for product revenue in the range of $850 million to $855 million, which would amount to growth of about 22%. It also forecast an adjusted operating margin of 3%.
For the full year, management raised its product revenue forecast to $3.356 billion -- growth of about 26% -- but that implies a moderate deceleration in the second half.
With slowing growth, excessive stock-based compensation expenses, and wide GAAP losses, Snowflake still needs to prove to investors that it can be profitable. While its valuation is starting to look more reasonable, this sell-off is understandable.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Snowflake. The Motley Fool has a disclosure policy.
