Snowflake raises annual product revenue forecast, unchanged margins weigh on shares

:Data cloud analytics firm Snowflake on Wednesday raised its forecast for full-year product revenue, as it attracts more clients to its cloud platform owing to advancements in artificial intelligence.
However, shares of the firm fell more than 8 per cent in extended trading. D.A. Davidson analyst Gil Luria attributed the drop to the company not pairing the rise in revenue projections with a rise in margin forecast.
Snowflake executives said on a post-earnings conference call that they left the margin forecast unchanged partly due to the firm awaiting the deployments of certain GPUs.
The company now expects product revenue of $3.36 billion for fiscal 2025, up from its prior forecast of $3.30 billion.
It also authorized the buyback of an additional $2.5 billion worth of the company’s shares through March 2027.
“The company’s product gross margin outlook for fiscal 2025 suggests that this (capital) pressure may persist in the second half of 2024 partially due to Snowflake offering credits to enterprise customers that experienced security breaches,” said Michael Ashley Schulman, chief investment officer at Running Point Capital.
Snowflake was the victim of a data breach earlier this year which saw large amounts of customer data stolen from firms like TicketMaster-parent Live Nation and telecom titan AT&T.
The company said the cybersecurity incident did not have an impact on product consumption.
Snowflake has seen a rise in demand for its Data Cloud platform as AI integration has helped enterprises streamline their data quickly and efficiently.
The company reported product revenue of $829.3 million for the second quarter ended July 31, beating estimates of $808.4 million, according to LSEG data.
On an adjusted basis, the company earned 18 cents per share, compared with estimates of of 16 cents.
Snowflake has been actively pursuing AI by creating its own large language model called Snowflake Arctic, and partnering with Facebook-parent Meta to use its Llama models and boost the appeal of the company’s cloud platform.