2 Big Red Flags for Snowflake Investors
Shares of data cloud specialist Snowflake (NYSE: SNOW) have been on a roller coaster recently. After falling more than 51% last year amid a broader sell-off of growth tech stocks, shares have risen more than 15% this year. But even in the first half of 2023, it has remained a bumpy ride for shareholders of the fast-growing company's stock. Investors are trying to weigh the company's rapid growth with the fact that those high growth rates are quickly decelerating.
Here's a closer look at Snowflake's business, its growth, and why investors may want to tread carefully when it comes to the company's highly valued stock. In short, there are two big concerns that Snowflake investors should take seriously: the degree to which Snowflake's growth rate is decelerating and management's recent move to significantly lower its full-year revenue guidance.
Snowflake grew product revenue by 50% year over year in its most recent quarter. This is nothing to sneeze at. Clearly, Snowflake's data cloud infrastructure is resonating with customers. But the growth doesn't look as impressive when viewed next to recently reported growth rates. In the second, third, and fourth quarter of fiscal 2023 (the three quarters leading up to Snowflake's most recently reported quarter), Snowflake's product revenue growth rates were 84%, 83%, and 67%, respectively. The company's 50% growth rate in its first quarter of fiscal 2024, therefore, marked a big step down. If this rapid deceleration in Snowflake's growth continues, it could become extremely difficult to justify the company's valuation.
Source Fool.com
