Snowflake Inc. (SNOW) delivered solid third-quarter results on Wednesday that beat Wall Street expectations, but investors weren't exactly celebrating. The AI data cloud company reported revenue of $1.21 billion, topping analyst estimates of $1.18 billion. Adjusted earnings came in at 35 cents per share, beating the consensus estimate of 31 cents per share.
So what's the problem? Well, guidance matters, and Snowflake's fourth-quarter outlook included an operating margin forecast that made investors nervous. The company expects adjusted operating margin of just 7% in the fourth quarter, down from 11% in Q3. That compression spooked the market enough to send shares down 11.2% to $235.20 on Thursday, despite the earnings beat.
CEO Sridhar Ramaswamy put a positive spin on the results, highlighting the company's strategic position. "Snowflake is the cornerstone for our customers' data and AI strategies, driving real business impact at scale. Snowflake Intelligence, our enterprise AI agent, saw the fastest adoption ramp in Snowflake history and is transforming how businesses interact with their data, delivering real-time, actionable intelligence," he said.
For the fourth quarter, Snowflake expects product revenue between $1.195 billion and $1.20 billion, representing roughly 27% year-over-year growth. That's respectable growth, but the margin guidance clearly overshadowed the topline beat.
Here's the interesting part: while the stock took a beating, analysts remained optimistic. Eight firms raised their price targets following the earnings announcement, signaling confidence in the company's longer-term prospects despite near-term margin pressure.
The analyst moves included:
- Keybanc analyst Eric Heath maintained an Overweight rating and raised the price target from $275 to $285.
- Baird analyst William Power maintained an Outperform rating and raised the price target from $260 to $270.
- Cantor Fitzgerald analyst Thomas Blakey maintained an Overweight rating and raised the price target from $275 to $278.
- Morgan Stanley analyst Sanjit Singh maintained an Overweight rating and raised the price target from $272 to $299.
- Wells Fargo analyst Ryan Macwilliams maintained an Overweight rating and raised the price target from $275 to $290.
- Scotiabank analyst Patrick Colville maintained a Sector Outperform rating and raised the price target from $280 to $290.
- Canaccord Genuity analyst Kingsley Crane maintained a Buy rating and raised the price target from $260 to $270.
- Stifel analyst Brad Reback maintained a Buy rating and raised the price target from $260 to $280.
The takeaway? Snowflake beat expectations where it counts—revenue and earnings—but the market wanted better margin guidance for next quarter. Meanwhile, analysts seem willing to look past the near-term margin squeeze and focus on the company's growth trajectory and AI positioning.
