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Snowflake Q2 Earnings Preview: What’s Ahead?

Snowflake (SNOW) is set to release second-quarter fiscal 2022 earnings on August 25.

Snowflake, a cloud-based software company that went public in September of last year, has gained roughly 15% over the past three months.

A strong set of numbers in fiscal Q2 might propel the stock price upward, so let’s take a closer look at what analysts on the Street are expecting. This author’s sentiment on this stock is neutral.

Fiscal Q2 Expectations

For Q2, the Street expects Snowflake to report a loss per share of $0.15 and revenues of $256.42 million.

Meanwhile, the Earnings Whisper number, or the Street’s unofficial view on earnings, stands at a loss of $0.12 per share. (See Snowflake Dividend Date and History on TipRanks)

Snowflake’s Prior Quarter Snapshot

Snowflake reported strong fiscal Q1 earnings results, with triple-digit growth in the company’s product revenue.

Revenues increased by 110% to $228.9 million, which beat the analysts’ consensus of $213 million.

Meanwhile, the company continues to post net losses. In Q1, net losses widened to $203.2 million, from a loss of $93.6 million in the year-ago quarter.

What to Watch for in Snowflake’s Earnings

Since its inception, the revenue growth of Snowflake has been increasing at a rapid pace. 

The main reason behind the growth is the increasing need for data cloud computing across a variety of industries, including financial services, healthcare, and life sciences, retail and consumer packaged goods, advertising, media and entertainment, and so on.

Furthermore, the exponential expansion of organizations undergoing digital transformations is generating increased demand for data warehouses, which is assisting the company's top-line growth.

Investors should consider Snowflake's key indicators, to better gauge the performance of the company.

The first is product revenue, which combines revenue from computing, storage, and data transfer resources into a single category.

Product revenues, a key indicator for Snowflake, were up by 110%. For the second quarter, Snowflake expects product revenues of $235-$240 million, reflecting a growth rate of 88%-92%.

Another sign of the underlying strength of the company’s platform is the net revenue retention rate, which was at 168%. In the last earnings call, management stated that net revenue retention will stay above 160% for 2021, implying that consumers will buy more software over time.

Furthermore, the fact that Snowflake has signed big deals, particularly with customers who spend more than $1 million per year, is positive. It's worth noting that the company had 4,532 overall customers at the end of Q1, with 104 of them generating more than $1 million in annual sales.

Strong adoption of its cloud-native solutions in technology, financial services, health care, and other industries is projected to keep the trend going in the coming quarter.

In sum, the global cloud computing market is anticipated to grow at a CAGR of 17.5% from 2020 to 2025, providing enormous growth opportunities ahead.

As a result, this cloud-based equipment and infrastructure provider is on the right side of a major trend and has ample room for growth.

On a less positive note, the company is facing more competition from huge cloud computing providers' competing solutions, particularly Google's (GOOGL) BigQuery software, which could be a cause of worry.

Analysts’ Recommendations

According to TipRanks’ analyst rating consensus, SNOW stock comes in as a Moderate Buy. Out of 18 analyst ratings, there are 10 Buy recommendations and 8 Hold recommendations.

As for price targets, the average SNOW price target of $281.73 implies 5.7% upside potential from the current levels.

Ahead of the Q2 earnings release, Brian White of Monness, maintained a Hold rating on the stock.

White expects the company to report “impressive” earnings results in the fiscal second quarter, driven by a recovery in the macro environment, strengthening secular trends, and new innovations.

However, he said that the stock is not for risk-averse investors, stating that “valuation is not for the faint of heart.” With a negative P/E ratio of -120.3 and a market cap of $79 billion, many would argue that Snowflake is overvalued. The stock currently trades at $266.67 per share.

Nevertheless, the stock’s TipRanks financial blogger opinions metric, which is based on 36 Blogger Opinions, indicates that 68% of the analysts are bullish on SNOW, compared to a sector average of 70%.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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