Snowflake Rises Post Q3 Earnings: How Should You Play the Stock?

Snowflake SNOW shares jumped 32.8% following its impressive third-quarter fiscal 2025 results on Nov. 20. SNOW reported non-GAAP earnings of 20 cents per share, beating the Zacks Consensus Estimate by 33.33% and reflecting strong operational performance and customer-base expansion.

SNOW’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while missing once, the average earnings surprise being 35.39%.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

SNOW shares have plunged 13.8% year to date against the Zacks Computer & Technology sector’s growth of 27.7%.

It has been suffering from stiff competition from companies like Databricks, as well as increasing pricing pressure and growing GPU-related costs as it aggressively invests in AI initiatives.

YTD Performance

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Nevertheless, Snowflake’s prospects are robust, driven by a strong portfolio and an expanding partner base.

In the reported quarter, Snowflake partnered with Microsoft MSFT and ServiceNow NOW to improve data interoperability, making it easier for customers to move data in and out of Snowflake and develop applications faster.

So, the question that arises is - how should investors now play SNOW stock after third-quarter fiscal 2025 results? Let’s dig deep to find out.

SNOW’s Strong Portfolio: A Key Catalyst

SNOW benefits from a strong portfolio with new capabilities, including Marketplace, Listing Auto-Fulfillment & Monetization, account replication & failover, Query Acceleration Service, geospatial analytics, Snowpark and Snowpipe Streaming.

In the third quarter of fiscal 2025, Snowpark contributed a significant portion toward SNOW’s top-line growth and is on track to be roughly 3% of total revenues.

Iceberg tables, Hybrid tables and Cortex Large Language Model (LLM) and machine learning-powered functions strengthen SNOW’s offerings.

More than 3,200 accounts adopted SNOW’s AI and ML features in the reported quarter, and approximately 500 accounts adopted Iceberg.

SNOW has an expanding partner base that includes Amazon, Microsoft, ServiceNow, NVIDIA NVDA, Fiserv, EY, Deloitte, LTMindtree, Next Pathway and S&P Global, among others.

Snowflake has adopted NVIDIA AI Enterprise software to integrate NeMo Retriever microservices into Snowflake Cortex AI, its fully managed LLM and vector search service. The integration will help enterprises to smoothly connect custom models to diverse business data and deliver highly accurate responses.

SNOW’s recent announcement of its partnership with Anthropic brings the latter’s advanced AI models to Snowflake Cortex AI, enabling enterprises to build secure, cutting-edge AI applications with ease and flexibility.

Snowflake’s growing client base includes industry leaders like Disney, Accor, Comcast, Chipotle, Kraft Heinz, NBC Universal, Sanofi and Toyota. Disney utilizes SNOW’s platform for in-park optimization.

SNOW remained acquisitive in the reported quarter. Its planned acquisition of Datavolo strengthens Snowflake’s platform for both structured and unstructured data, enhancing flexibility and simplifying data engineering workloads for customers.

SNOW Offers Positive Guidance for Q4 and Fiscal 2025

For the fourth quarter of fiscal 2025, Snowflake expects product revenues in the range of $906-$911 million. The figure indicates year-over-year growth of approximately 23%.

The Zacks Consensus Estimate for fiscal fourth-quarter 2025 revenues is currently pegged at $952.55 million, indicating 22.96% year-over-year growth. The consensus mark for earnings is pegged at 17 cents per share, up 41.67% over the past week. The figure suggests a decrease of 51.43% year over year.

For fiscal 2025, SNOW expects product revenues to increase 29% year over year to $3.43 billion.

The non-GAAP product gross margin is expected to be 76% and the non-GAAP operating margin is expected to be 5%.

The non-GAAP adjusted free cash flow margin is expected to be 26% in fiscal 2025.

The Zacks Consensus Estimate for SNOW’s fiscal 2025 revenues is pegged at $3.59 billion, indicating year-over-year growth of 28%. The consensus mark for earnings is pegged at 68 cents per share, up by 17.24% over the past week, and suggesting a decrease of 30.61% on a year-over-year basis.

SNOW Shares Trading at a Premium

Snowflake’s Value Score of F suggests a stretched valuation at the moment.

Currently, SNOW is trading at a premium, with a forward 12-month Price/Sales of 13.6X compared with the sector’s 6.13X and the Internet Software Industry’s 3.02X.

Price/Sales Ratio (F12M)

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SNOW shares have been trading above the 50-day and 200-day moving average, indicating a bullish trend.

SNOW Shares Trade Above 50-Day and 200-Day SMA

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SNOW: Buy, Sell, or Hold the Stock?

Snowflake is a risky bet in the near term, given its modest growth prospect and a stretched valuation. However, investors who already own the stock may expect the company's growth prospects to be rewarding, given its strong portfolio and partner base over the long term.

SNOW currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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