Snowflake (Nasdaq: SNOW) finished 3% higher despite a mixed earnings report in which the company fell short on earnings expectations but issued better guidance than expected. Snowflake's shares had a strong debut by opening nearly 100% above its pre-IPO price and then continually trending higher. However, since its peak in December, the stock is down by nearly 50%.
Inside the Numbers
In Q1, Snowflake reported earnings per share of -$0.70 which was higher than analysts' expectations and more than doubling its net loss from the previous year. Revenue came in slightly above expectations at $228.9 million vs $212.9 million. This was a 110% increase from 2020's Q1 and a slight deceleration from the previous quarter's 117% gain.
The company also saw an increase in gross margins due to re-negotiating rates with cloud providers and the implementation of a change in storage compression. Additionally, the company is working on developing new chip technologies that could lead to more power and performance and provide another boost to margins. This is expected to be implemented later this year or more likely in 2022.
For Q2, Snowflake expects between $235 million and $240 million in product revenue which is above consensus expectations of $235 million and 171% growth. For the full year, Snowflake is expecting between $1.02 billion and $1.035 billion, implying 86% revenue growth and above expectations. It's also a slight increase from its previous forecast in Q4.
Stock Price Outlook
Snowflake's sharp decline this year is not surprising considering the weakness in growth stocks. Although, Snowflake does have a bright future, it remains one of the most overvalued stocks in the market based on its $70 billion market cap and $1 billion in revenue. Further, the lockup period expiring is another headwind for the stock price.
In recent weeks, growth stocks have found a bid, and Snowflake shares have bounced more than 35% from its lows. Following the earnings report, Snowflake shares were down as much as 8%, yet investors bought the dip and shares finished in the green.
Although, there could be a trading opportunity. Investors should remain cautious as the stock has sustained serious technical damage and likely needs some period of consolidation before it can start climbing higher. It simply IPO'd at a peak in multiples for growth stocks. The best outcome for the stock would be range-bound trading, while underlying fundamentals continue to improve which leads to more value-based investors starting to enter the stock.