"Snowflake ( ) released its third-quarter earnings yesterday, posting results that topped Wall Street estimates. Product revenue climbed 28% year-over-year to $1.21 billion, while adjusted earnings hit $0.35 per share, beating the consensus estimate of $0.31. Yet, the stock plunged 11% in midday trading today as investors fixated on the company's fourth-quarter guidance ."
"Projected product revenue of $1.20 billion to $1.205 billion - implying just 27% growth at the midpoint - is roughly in line with the $1.20 billion expected, but growing slower than the 29% rate in the October quarter. Executives pointed to heavier discounts to secure deals amid competitive pressures, which slowed net revenue retention to 125% from 127% in the year-ago quarter."
"Snowflake's weak outlook stems from a tougher sales environment where customers demand steeper concessions. CEO Sridhar Ramaswamy noted that while overall demand holds firm, "macro headwinds" forced more aggressive pricing to close large contracts. This led to a 2-point drop in net retention rates, signaling that enterprises are negotiating harder on expansions. Product gross margins held at 76%, but the reliance on discounts raises questions about pricing power in a maturing cloud data market. Analysts like those at Bernstein flagged this as a "yellow flag," warning that sustained concessions could erode profitability if growth doesn't rebound."
Snowflake reported Q3 product revenue up 28% to $1.21 billion and adjusted EPS of $0.35, beating estimates. The stock fell 11% after guidance projected Q4 product revenue of $1.20–$1.205 billion, implying 27% growth at the midpoint. Executives attributed the softer outlook to heavier discounts needed to win deals, which reduced net revenue retention to 125% from 127% year-over-year. Product gross margins remained 76%. Broader market signals include disputed reports of reduced AI sales quotas at Microsoft and survey evidence that only 39% of firms see meaningful EBIT impact from AI. Analysts cautioned that sustained concessions could pressure profitability.
#snowflake #earnings-guidance #discounting-and-pricing-pressure #net-revenue-retention #ai-spending-impact
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