Showing that even the highest flyers are not immune to the global economic uncertainty, Snowflake reported FY23 product-revenue growth of 70% but guided to 44% for the first quarter, which ends April 30.
Pointing to ongoing robust demand among many large enterprises but also less-rapid growth in some other sectors, Snowflake CEO Frank Slootman summed up the current situation perfectly by saying his company will “focus on the business at hand and the outcomes we can control.”
While Snowflake’s soaring quarterly results over the past 18 months seemed to indicate it had discovered the secret to defying the laws of gravity, its significant product-revenue base of $1.9 billion for the year ended Jan. 31 plus what Slootman called “reticence” among some customers resulted in the company projecting Q4 product-revenue growth of “only” 44% to 45%.
“We saw a measure of bookings reticence within certain customer segments in Q4, reflecting a lack of visibility in their business and preferring a cautious short-term stance versus larger, longer-term contract expansions,” Slootman said in his opening remarks on Snowflake’s March 1 earnings call.
“This was more pronounced among our international, SMB, and commercial customers, and much less so at the high end of our customer base,” he added.
Many customers with a history of making significant commitments to Snowflake decided instead to make fairly small commitments in Q4, with those expenditures being just large enough to allow contractually for some consumption growth in the near term.
But the intensely pragmatic Slootman said that despite the recent moderation in growth rates, the company remains bullish on its prospects — “we are operating in a vast and growing market” — and rather than obsessing over macroeconomic issues will “focus on the business at hand and the outcomes we can control.”
Some key Q4 numbers and commentary from Slootman and CFO Mike Scarpelli:
- “We continue to be on track for our $10 billion product revenue goal in fiscal ’29.” — Slootman
- Remaining performance obligations (RPO) grew 38% totaling $3.7 billion
- Q4 product revenue was up 54% to $555 million
- FY23 product revenue was up 70% to $1.9 billion
- “Our data-networking growth as measured by “stable edges” grew 93% year over year, and 23% of our customers now have at least one stable edge, up from 18% a year ago.” — Slootman
- “A financial services customer is migrating workloads from Spark to Snowpark, and Snowpark ran 8X faster at 30% of the cost.” — Slootman
- “Q4 bookings underperformed versus our expectations. Pipeline conversion in the final two weeks of the quarter diverged from historical norms, with international driving the largest underperformance relative to plan. Multiyear bookings declined by 15% year over year. While we are not OK with this outcome, customers’ bookings behavior does not dictate their consumption patterns. Customers have the contractual right to sign smaller deals to bridge them to their contract-end date. We are confident that our customers are committed to Snowflake and are increasingly focused on better managing their business during more uncertain times.” — Scarpelli
- “We have expanded our partnership with AWS over the next five years, and have more than doubled our previous spend commitment to $2.5 billion. As part of the new agreement, AWS is committing to support joint go-to-market efforts along with more-favorable pricing. This partnership is aimed at driving growth and innovation.” — Scarpelli
- “The change in existing customer purchasing behavior, lower-than-expected new logo bookings, and slower expected ramp from our youngest cohorts has led us to reevaluate our FY ’24 outlook. For the first quarter, we expect product revenues between $568 million and $573 million, representing year-over-year growth between 44% and 45%.” — Scarpelli
From both the numbers as well as the commentary from Slootman and Scarpelli, there’s no question that Snowflake has joined a large number of other major cloud providers in revising growth estimates downward.
At the same time, you know you’re in a rather extraordinary market when your CEO can cite customer “reticence” and point to a slowdown in demand and still guide to growth of 44%.
For Snowflake and the entire Cloud Wars Top 10, this too shall pass. Until it does, we would all do well to keep Slootman’s declaration close at hand: “We will focus on the business at hand and the outcomes we can control.”
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