SNOW - Snowflake: Some Challenges And More Solutions

2024-04-05 16:05:48 ET

Summary

• Snowflake Inc.'s recent guidance for 22% revenue growth has disappointed investors and caused a decline in share price.
• The company's new CEO, Sridar Ramaswamy, is seen as the right leader to address challenges and drive growth.
• Snowflake's AI initiative, Cortex, and other new products have the potential to significantly impact revenue and profit projections.
• Snowflake has developed competitive solutions to address competition with Databricks and other alternatives in the market.
• Snowflake's current guidance is likely to be exceeded, providing a much more reasonable valuation framework than might be in the minds of many.

Snowflake: Does a new leader and some new technologies signify a return to hyper growth?

It has been 8 months or so since I last wrote about Snowflake Inc. (SNOW) for Seeking Alpha. I rated the shares a strong buy then - it wasn't the greatest call. The shares have essentially been flat since then, while iShares Expanded Tech-Software Sector ETF (IGV), probably the most representative software ETF, has appreciated a bit less than 20% over the same time span. It hasn't been the most pleasant journey with an expected growth inflection disappearing over the course of a couple of quarters embodying disappointing forecasts for revenue growth.

It can be easy to give up on the shares of this erstwhile hyper-growth company and conclude that it has lost its competitive mojo. And there is no doubt that Snowflake has challenges. It also has solutions for its challenges and increasing opportunities.

Notionally, the shares aren't cheap, and that is even after considering the company's rapidly growing free cash flow margin . And the company's percentage growth has been declining for the last two years without much relief for weary investors, including this writer. I have lots of patience with investments…some might say too much, but at this point, I think it does make sense to do a deep dive into what actually has been happening...

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