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Snowflake Down Post Q2 Earnings: Is SNOW Stock a Buy on Dip?

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Snowflake (SNOW - Free Report) shares were down more than 12% following the second-quarter fiscal 2025 results. 

It reported terrific results driven by strong adoption of its solutions. Snowflake’s product revenues jumped 29.5% year over year to $829.3 million and accounted for 95.4% of fiscal second-quarter total revenues.  

For fiscal 2025, SNOW now expects product revenues to increase 26% year over year to $3.36 billion, better than the previous guidance of $3.3 billion and 24% year-over-year growth. Nevertheless, the growth rate is much slower than the 38% growth it reported in fiscal 2024.

SNOW reiterated its non-GAAP product gross margin guidance of 75% and a non-GAAP operating margin of 3%. Gross and operating margins are expected to contract 300 basis points (bps) and 500 bps on a year-over-year basis, respectively.

The non-GAAP adjusted free cash flow margin is expected to be 26% in fiscal 2025 compared with 29% reported in fiscal 2024. 

The decline in SNOW’s share prices reflects weak margin guidance, primarily due to higher GPU costs. 

Year to date (YTD), SNOW shares have plunged 32.1%, underperforming the broader Zacks Computer & Technology sector's return of 22.8%.

YTD Performance

Zacks Investment Research
Image Source: Zacks Investment Research

SNOW Beats Earnings & Revenue Estimates in 2Q

Snowflake reported second-quarter fiscal 2025 non-GAAP earnings of 18 cents per share, beating the Zacks Consensus Estimate by 20%. However, the figure declined 18.2% year over year.

Revenues of $868.8 million beat the consensus mark by 2.26% and jumped 29% year over year. 
 

Snowflake Inc. Price, Consensus and EPS Surprise

Snowflake Inc. Price, Consensus and EPS Surprise

Snowflake Inc. price-consensus-eps-surprise-chart | Snowflake Inc. Quote

In the fiscal second quarter, Snowflake witnessed a net revenue retention rate of 127% for existing customers.     

SNOW reported 21.2% year-over-year growth in the number of customers, reaching 10,249 in the reported quarter. It now has 510 customers with trailing 12-month product revenues greater than $1 million (up 28% year over year) and 736 Forbes Global 2000 customers (up 5% year over year). 

Its recently announced extended share buyback program ($2.5 billion) reflects strong liquidity with a cash balance of $3.23 billion. 

SNOW’s Q3 Guidance Positive

For the third quarter of fiscal 2025, Snowflake expects product revenues in the range of $850-$855 million. The projection range indicates year-over-year growth of 22%.

The operating margin is expected to be 3% for the fiscal third quarter.

The Zacks Consensus Estimate for fiscal third-quarter revenues is currently pegged at $882.67 million, indicating 20.23% year-over-year growth. The consensus mark for earnings has been steady at 15 cents per share over the past 30 days, suggesting a 40% year-over-year decline.

SNOW Stock Overvalued

SNOW stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.

Snowflake stock is trading at a significant premium compared to the Zacks Computer & Technology sector. Its forward 12-month Price/Sales of 11.54X is higher than the broader sector’s 6.46X.

Price/Sales Ratio (F12M)

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Image Source: Zacks Investment Research

Moreover, the shares are trading below the 50-day moving average, indicating a bearish trend.

SNOW Stock Trades Below 50-Day SMA

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Image Source: Zacks Investment Research

Snowflake’s Expanding Portfolio Aids Long-term Prospects

SNOW has introduced capabilities, including Marketplace Listing Auto-Fulfillment & Monetization, account replication & failover, Query Acceleration Service, geospatial analytics and Snowpipe Streaming. 

Iceberg tables, Hybrid tables, and Cortex Large Language Model (LLM) and machine learning-powered functions became available in public preview. These capabilities are expected to become generally available in fiscal 2025.

Snowflake recently launched Polaris Catalog — a vendor-neutral, open catalog implementation for Apache Iceberg — the open standard of choice for implementing data lakehouses, data lakes and other modern architectures.

Polaris Catalog is supported by Iceberg’s open-source REST protocol, which provides an open standard for users to access and retrieve data from any engine that supports the Iceberg Rest API, including Apache Flink, Apache Spark, Dremio, Python, Trino and more.

Polaris Catalog offers enterprises and the entire Iceberg community new levels of choice, flexibility, and control over their data, with full enterprise security. It offers Apache Iceberg interoperability with Amazon’s (AMZN - Free Report) cloud division Amazon Web Services (“AWS”), Confluent, Dremio, Google Cloud, Microsoft (MSFT - Free Report) Azure, Salesforce and more.

SNOW is benefiting from an expanding partner base that includes Amazon, Microsoft, NVIDIA (NVDA - Free Report) , Fiserv, EY, Deloitte, LTIMindtree, Next Pathway and S&P Global, among others.

Conclusion

Snowflake is a risky bet in the near term, given its modest growth prospect and a stretched valuation.

SNOW currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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