Snowflake stays warm in frosty macro environment, shares soar on solid Q2 numbers

Whilst other B2B software vendors may be softening their guidance as a result of the macroeconomic headwinds, Data Cloud vendor Snowflake beat analyst expectations with its Q2 numbers and saw its shares soar by 18% in after hours trading. 

As diginomica noted earlier this year, whilst attending Snowflake Summit 2022 in Las Vegas, the company is developing its Data Cloud to create an integrated and cross-platform approach to eliminating data silos in the enterprise. 

CEO Frank Slootman told analysts on an earnings call that the company’s platform is being prioritized by enterprise buyers and that Snowflake is focused on becoming the underpinning architecture for next generation cloud application development. He said: 

Our success is fueled by broad-based workload enablement. The core idea behind the Snowflake Data Cloud is to enable work to come to the data and prevent data from having to be moved to the work. Previously, data was copied, transferred and replicated to be used wherever it was processed. That led to massive operational complexity, cost and governance risks. The Snowflake Data Cloud promises to bring that regrettable legacy to an end.

The key figures for Q3 2022 are: 

• Product revenue of $466.3 million in the second quarter, representing 83% year-over-year growth

• Remaining performance obligations of $2.7 billion, representing 78% year-over-year growth

• 6,808 total customers

• Net revenue retention rate of 171%

• 246 customers with trailing 12-month product revenue greater than $1 million

Continued growth

CFO Mike Scarpelli added some colours to the numbers and said that of the $2.7 billion in RPO, Snowflake expects approximately 57% to be recognized in the next 12 months. This represents a 79% increase compared to the company’s estimate in the same quarter last year. 

In addition to this, Scarpelli pointed to the Snowflake’s success in particular verticals and highlighted how the company is seeing larger consumption amongst bigger organizations. He said: 

Our net revenue retention rate of 171% includes 15 new customers with $1 million in trailing 12-month product revenue and reflects durable growth among our largest customers. We continue to pursue a vertical sales strategy. Our core verticals are financial services, advertising, media and entertainment, retail and CPG, technology and healthcare and life sciences. While all verticals are growing rapidly, financial services drove the most product revenue growth sequentially. Advertising, media and entertainment and technology verticals grew in line with the overall company.

Driving this growth is our continual move up market. In the quarter, we added 12 new Global 2000 customers. Our average trailing 12-month product revenue from these customers grew 14% quarter-over-quarter to $1.2 million. We believe these accounts will grow to become our largest customers. 

A Global 2000 technology company is now a top 10 product revenue customer, less than 2 years after signing their initial deal. 

Scarpelli went on to note that Snowflake isn’t seeing a softening of demand for its platform across its customer base - or at least it isn’t impacting its revenue. He said: 

Last quarter, we called out customers that were negatively impacted by headwinds specific to their businesses. The Q2 results from these customers were mixed. Some saw the weakness we expected while others outperformed. We are monitoring our key business metrics, which we believe are leading indicators of the macro economy impacting our business. We are not seeing these metrics soften across the customer base.

For example, our corporate sales team that addresses small and medium-sized businesses outperformed their net new bookings goal for the quarter. Our EMEA sales team contributed 4 of our top 10 new customer wins in the quarter. And as mentioned earlier, the largest organizations in the world continue to increase their use of Snowflake. These indicate that companies globally are prioritizing Snowflake right now. 

Foreign currency exposure has been a relevant topic recently. However, less than 5% of our revenue is invoiced in currencies other than the U.S. dollar. So at the moment, we do not evaluate our business on a constant currency basis given the immateriality.

CEO Slootman agreed and said that Snowflake will continue to see success, despite the economic turmoil, as its platform is critical to helping its customers navigate the disruption. He said: 

In general, I would say that Snowflake gets prioritized fairly high inside the enterprise. And the reason is we are sitting right on the intersection of cloud computing, artificial intelligence, machine learning, advanced analytics. 

Customers have picked up the center of the opportunity that is in front of them and they are investing, they are hiring, they are buying, because these are things that are going to be big changes for the industry. The whole industries are going to get redefined in healthcare, in pharma, in financial services. So this is not a business as usual. 

There is a very, very high urgency around advancing towards cloud computing environments and then having an opportunity to really pursue the promise that it brings. We are living at a very, very exciting times where things are becoming possible that we couldn’t even dream of just a few short years ago. So, this is why we feel that this is not one of those expenses that people are going to casually cutback on, because it’s strategically compelling and important.

My take

The economic disruption is a good indicator for which enterprise platforms are being prioritized during these turbulent times. Snowflake has an opportunity ahead of it, execution is now key.