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The Ratings Game: Snowflake stock shrugs off guidance miss amid debate on whether growth inspires ‘confidence’ or concern

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Snowflake Inc. remains a controversial story coming out of earnings.

The data-software company’s late Wednesday report contained a lot to unpack. Snowflake
SNOW,
+1.25%

beat revenue expectations in its latest quarter but saw growth slow, and it fell short of expectations with its forecast for the current quarter but signaled that its outlook was conservative.

The earnings sparked reactions that ran the gamut, as Snowflake’s stock traded about 3% higher in initial Thursday morning activity after being down more than 10% in Wednesday’s aftermarket action shortly after the release of the results.

“While the smaller upside in Q3/Q4 may drive stock lower, we expect some recovery as investors should have more confidence in combination of best-in-class growth levered to resilient data/analytics projects and now a de-risked FY24 guide with even faster rapidly improving margins,” Citi Research analyst Tyler Radke wrote in a note to clients late Wednesday, while maintaining a buy rating and $210 price target on the shares.

But Bernstein’s Mark Moerdler was less impressed by the company’s growth trends.

“In the near-term, we are concerned that the growth deceleration we saw so far in the year may spill over to the next year,” he wrote, saying that Snowflake’s guidance implies product revenue growth slowing from 84% in the first quarter of fiscal 2023 to 49% in the fourth quarter, and then stabilizing at 47% during fiscal 2024, which kicks off next year.

He rates the stock at market perform with a $166 target price.

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Then there was the company’s preliminary target of 47% product revenue growth in fiscal 2024, which also lagged the consensus view. Analysts couldn’t agree on whether such a forecast was encouraging or a further source of stress.

Jefferies analyst John DiFucci, who is bearish on Snowflake, offered that the company’s forecasts showed “that the low-friction growth of a consumption model has an equal and opposite effect in difficult times.”

He also sees “some risk” to the fiscal 2024 guidance. “There could be upside potential if economic conditions improve, but on the flip side, further economic deterioration could make the initial FY24 unattainable,” DiFucci wrote as he cut his price target to $105 from $125 and kept a sell rating on the stock.

Read: Salesforce co-CEO Bret Taylor leaving, stock falls after lower-than-expected forecast

Needham’s Mike Cikos, who is bullish on the stock, chimed in that the fiscal 2024 forecast is “confusing to investors as the outlook appears aggressive to us.”

“For perspective, Snowflake’s guided 4Q exit-velocity is in the 49%-50% [year-over-year] range — so the 47% outlook for FY24 doesn’t assume a material deceleration, despite comping against low-80%s [year-over-year] growth through the 1st half of next year,” he wrote. “Net: We appreciate the FY24 guidepost, but it does nothing to de-risk numbers in our view.”

Cikos has a buy rating on Snowflake’s stock, but cut his price target to $165 from $240.

Cowen & Co.’s Derrick Wood viewed the limited implied deceleration more positively.

The outlook “should give investors comfort in solid growth durability/visibility heading into next year,” he wrote, while reiterating an outperform rating on the shares and cutting his price target to $225 from $235.

Shares of Snowflake have declined 57% so far this year as the S&P 500
SPX,
-0.57%

has fallen 14%.

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