Following its Q3 earnings report, Snowflake's (Nasdaq: SNOW) stock was down 8%. However, investors scooped up shares, and they finished higher by 15% the following day. Snowflake is very impressive in terms of its growth, and it's addressing a large and potentially, lucrative market. However, the stock is overvalued by any metric which means there's a considerable amount of risk at current prices.
Inside the Numbers
Snowflake reported a loss of $1.01 per share and revenue of $159.6 million. This is a 119% increase from 2019's Q3, and it topped analysts' expectations who were looking for $156 million. Compared to last quarter, growth slightly dipped from 121%.
Gross margins also slightly decreased from 59.6% to 58.2%. However, the company expects its margins to expand in the coming years as cloud costs come down, and it offers less promotional discounts to new customers. Due to its growth, Snowflake continues to hire workers and is adding to its sales staff.
In terms of guidance, Snowflake is looking for revenue between $162 million and $169 million. The company also said it now has 65 customers who account for more than $1 million in sales. It also has $930 million in revenue that has already been agreed upon which will show up on the income statement in coming quarters.
Stock Price Outlook
Snowflake is a fascinating company from a variety of perspectives. It has a market cap of over $100 billion and a price-to-sales ratio of 216. Despite this size and valuation, it counts the normally value-conscious Berkshire Hathaway (NYSE: BRK.A) as an investor. It's a testament to Snowflake's business and growth potential and brings to mind Buffett's anecdote about how Google (Nasdaq: GOOG) was one of the biggest misses of his career because he knew how useful it was for Geico. Geico is also a major customer of Snowflake.
The company's software helps companies manage and make sense of their data. It then charges companies to access these "data warehouses". Its platform is built on top of cloud systems from Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), and Google. And, it's also competing with these companies. So far, it's winning because it's software is faster but also because it doesn't lock in a company from using one cloud platform.