To The Moon

$Snowflake(SNOW)$ is scheduled to report its third-quarter fiscal 2025 results on 20 Nov 2024 after market close.

Market consensus estimate for revenues is pegged at $898.77 million, indicating an increase of 22.42% from the year-ago quarter’s reported figure.

Earnings per share consensus mark we are looking at 15 cents, this is a decrease of 40% compared to same quarter one year ago.

Good Cloud Computing Growth Might Be Good News For SNOW

If we were to look at SNOW as a standalone software house, I do not know that is appropriate, SNOW sells their data analytics and management software that runs on the cloud computing platforms of $Amazon.com(AMZN)$ , $Microsoft(MSFT)$ and $Alphabet(GOOGL)$ .

So if there is any strong growth in cloud computing growth, it would benefit SNOW stock, similarly if there is a slowdown, we can see that SNOW stock price is pressured.

Snowflake has been evolving into a cloud data management platform. Investors are eyeing new product initiatives and traction in artificial intelligence under a new chief executive for Snowflake stock.

We have seen even though SNOW second quarter earnings topped Wall Street targets. but the modest beat and guidance does not sit well with investors, so we saw the stock price fell after the second quarter earnings.

So I think we need to see where have SNOW stands in the data analytics or warehousing space?

SNOW Top The Data Warehousing category. Significant Revenue Contribution?

SNOW currently top the Data Warehousing category with 13,231 current customers and an estimated market share of 20.45%.

The top three of Snowflake’s competitors in the Data Warehousing category are Amazon Redshift with 16.08%, Google BigQuery with 12.98%, SAP Business Warehouse with 11.78% market share.

While Amazon and Snowflake have partnered for cloud data services, Google's BigQuery platform is a Snowflake competitor. Meanwhile, Snowflake stock pulled off the largest initial public offering ever by a software company in September 2020. The Snowflake IPO raised $3.4 billion.

The company announced its chief executive, Frank Slootman, will retire. Snowflake said a former top executive at Alphabet's (GOOGL) Google, Sridhar Ramaswamy, will be its new CEO. Moreover, Snowflake acquired artificial intelligence startup Neeva, where Ramaswamy was CEO, in 2023.

SNOW has been suffering from challenging macroeconomic conditions, including persistent inflation, which have hurt customer spending patterns. Increased GPU-related costs as Snowflake aggressively invests in AI initiatives are expected to have kept margins under pressure. Moreover, stiff competition from the likes of Databricks is increasing pricing pressure.

Databricks Competition A Concern Not To Ignore?

Amid investor concern over stiff competition with Databricks, SNOW stock has retreated about 41% in 2024. The iShares Expanded Tech-Software Sector ETF (IGV), an industry index that includes many big-cap software companies, is up 15%.

Databricks aims to combine data warehouses and data lakes under a single platform, while Snowflake is promoting a data warehouse with a software-as-a-service (SaaS) offering that boasts less maintenance and scalability.

Snowflake is a fully managed service, so deploying and scaling up or down is easier. Most of the operations are hidden from the end-user, so there are few options for fine-tuning. On the other hand, Databricks needs much more administration and deployment; it requires expertise to optimize the queries executing against the data lake engine.

Both platforms are dependent on cloud platforms because of their storage layers. However, they are threatened by cloud providers that offer similar platforms and have better integration within their ecosystems.

If we looked closely to the items that organizations are concerned when choosing a data platform or service providers, we can see that the migration, scalability and how easy can a system be adopted might be something to consider. But pricing pressure from Databricks still remains.

Top-Line Growth Benefiting From Strong New Capabilities Portfolio

The top three products and services offering customers that use Snowflake for Data Warehousing are Business Intelligence (509), Machine Learning (464), Big Data (439).

However, SNOW’s top-line growth is expected to have benefited from a strong portfolio with new capabilities, including Marketplace Listing Auto-Fulfillment & Monetization, account replication & failover, Query Acceleration Service, geospatial analytics, Snowpark and Snowpipe Streaming.

Exiting second-quarter fiscal 2025, SNOW had more than 400 accounts using Iceberg, and more than 2500 accounts leveraging Snowflake AI weekly. This strong momentum is expected to have carried into the to-be-reported quarter.

Is SNOW Consumption Business Model Bringing Their Revenue Down?

If we looked at those SaaS (Software As A Service) provider, the consumption-based software stocks are back in favor. But SNOW revenue is tied to how much data its customers crunch and store. 

One issue is that customers view Snowflake as expensive if they do not control usage. There is something that consumption-based model customer would be concerned which is less transparency and predictability, so unless we can see that SNOW will also offer a subscription-based SaaS business model.

Snowflake customers can share data with their partners across multiple online storage systems using the company's data warehouse. Snowflake also enables easily searchable data to be shared among applications. Snowflake and AWS currently have over 6,000 joint customers. About 84% of Snowflake customers run cloud workloads on AWS.

Something we need to understand is nowflake is multi-cloud, it derives some 85% of its revenues from data analytics jobs deployed on Amazon Web Services, which is also Snowflake's biggest rival with AWS Redshift, so AWS cloud have been growing, will there be some market share taken away from SNOW?

Comparing Snowflake and Amazon Redshift customers based on their geographic location, we can see that Snowflake has more customers in United States, United Kingdom and India, while Amazon Redshift has more customers in United States.

Technical Analysis - MACD and Multi-timeframe (MTF)

Even though we can see that SNOW has quite a good market share in the Data Warehousing space, but the stock price is still under pressure as investors might be worried about what might happen similar to second-quarter where a modest revenue beat, and the guidance also came in modest.

So I would be monitoring SNOW today (19 Nov) as there should be some investors activities that can suggest that they are anticipating a better revenue and SNOW could raise the yearly guidance because of stronger demand and also sales from their SaaS.

I am also looking forward to see if the new CEO would suggest looking at offering subscription-based model for some of their key customers, that should differentiate them from the competitors.

MACD is still in an upside movement, but we need the stock price to make a significant upside as MTF is not giving a very encouraging signal.

Summary

I would think the AI product initiatives by the new CEO as well as maybe a subscription-based model for some of their key customers could help SNOW to regain the confidence from the traders and investors.

I will be watching SNOW as I am into data platforms companies like $Palantir Technologies Inc.(PLTR)$, SNOW business and technology is key for companies who are doing machine learning which is essential part towards the AI or Generative AI development.

Appreciate if you could share your thoughts in the comment section whether you think we could see positive guidance and also a new AI product initiatives or business model to help their customer to bring cost down.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.