Snowflake (SNOW.US) announced financial results for the first quarter. Snowflake's second-quarter sales guidance exceeded expectations, indicating that new artificial intelligence products will help accelerate growth. Snowflake's product revenue for the first quarter increased 34% year over year to $789.6 million, higher than analysts' expectations of $749 million. Total revenue for the first quarter was US$829 million, up 32.9% year over year, and analysts expected US$786 million. Non-GAAP earnings per share were 14 cents, and analysts expected 19 cents.
The company said in a statement on Wednesday that as of July, product revenue, which accounts for the main source of total revenue, will reach US$805 million to US$810 million, and analysts' average expectations are US$787.5 million. The company also raised its product sales forecast for the current fiscal year from $3.25 billion to $3.3 billion.
This is the first full quarter for Sridhar Ramaswamy, a former Google executive and co-founder of search startup Neeva, as CEO of Snowflake. He needed to re-accelerate the cloud analytics software maker's growth while resisting competition from competitors such as Databricks Inc. Earlier, KeyBanc Capital Markets analyst Eric Heath pointed out that since Ramaswamy was appointed as CEO, the pace of AI-related announcements has accelerated. This is a positive change, and products such as Cortex and Snowpark Container Services are expected to become popular soon.
Evercore ISI analyst Kirk Materne wrote that although the outlook is stronger than expected, this still represents a slowdown in revenue growth and may not appease investors who are bearish on the stock. Bloomberg analyst Mandeep Singh said the guidance reflects the uncertainty of consumer spending in the second half of the year.
One pillar of Ramaswamy's strategy is investing in generative artificial intelligence products. Snowflake negotiated the acquisition of generative startup Reka AI for more than $1 billion, but ultimately failed. Snowflake released its own large-scale language model in April and allows customers to process their data using third-party artificial intelligence models within the company's platform. Ramaswamy said in a statement: “Our artificial intelligence products are now widely available and have aroused strong customer interest. They will help our customers deliver effective and efficient artificial intelligence experiences faster than ever before.”
Snowflake also announced that it will “acquire certain technology assets and hire key employees” from TrueRA, an artificial intelligence-oriented startup. TruEra last funded in 2022. Snowflake Chief Financial Officer Mike Scarpelli said in a conference call after the earnings report was announced that about 35 employees will join. Specific terms were not disclosed. As the field of generative artificial intelligence grows in popularity and hype, several big tech companies are partnering with or acquiring startups working on this technology.
By the end of the quarter, the company had a total of 7,296 employees, nearly 1,000 more than in the same period last year. In contrast, many other tech companies have been cutting jobs over the past year.
Scarpelli said the cost of graphics processing units is impacting profitability as the company invests in new artificial intelligence programs. “We believe these investments are key to unlocking additional revenue opportunities,” Scarpelli said.
Overall, data is the lifeblood of the internet and software, and data creation is growing at an accelerated pace. As a result, the importance of storing data in a scalable and efficient format continues to rise, particularly as its diversity and related use cases expand from analyzing simple structured data sets to large-scale processing of unstructured data such as images, audio, and video. As a result, the company's large customers continued to grow during the quarter.
This quarter, Snowflake reported 485 enterprise customers paying more than $1 million a year, an increase of 24 over the previous quarter, an increase of 30% year over year; there were also 709 Forbes Global 2000 customers, up 8% year over year. However, the number of customers spending more than $1 million a year was lower than the analysis expected, which may indicate that the slowdown in sales observed in the previous quarter is likely to continue. However, the stock contract amount (RPO) for the first quarter was $5 billion, up 46% year over year, higher than analysts' expectations. The net revenue retention rate (NRR) was 128% compared to 131% in the previous quarter.
As of press release, Snowflake was up more than 4% in after-market trading in the US stock market and closed at $163.34 on Wednesday. The company's stock price has dropped 18% this year as investors are wary of executive turnover and are concerned about slowing sales growth.