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The proverb has been traced to back to Aesop’s Fables, appears in Plato’s Republic and still holds true today.
Any way you say it, the message is clear: Necessity is the mother of invention.
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Sridhar Ramaswamy, chief executive of the cloud-storage and -analytics company Snowflake (SNOW) , picked up on that theme during the company’s first-quarter earnings call with analysts.
He said the company’s artificial intelligence budget is “modest in the scheme of things.”
Snowflake/TheStreet
“And so, being creative in how we develop these models is something that the team comes to naturally expect,” he said. “And I think that kind of discipline and scarcity, to be honest, produces a lot of innovation. And I think that’s what you’re seeing.”
Ramaswamy succeeded Frank Slootman as the top executive in February. He was the co-founder and CEO of the startup company Neeva, an ad-free, privacy-focused search engine, that Snowflake acquired.
Slootman, who had served as CEO since April 2019 and prepared the company for an initial public offering during the covid-19 pandemic, is Snowflake’s chairman.
Snowflake’s diverse customer base includes pharmaceutical company Pfizer (PFE) , telecom giant AT&T (T) , financial services company Capital One (COF) , and Yum! Brands’ (YUM) Kentucky Fried Chicken.
Snowflake CEO: AI is going to ‘fuel our platform’
“When I look at the Snowflake growth story, it was first driven by an amazing data product and then by the layers of collaboration and applications that we added on top to make Snowflake a true data cloud,” he told analysts.
“What is exciting about AI is that it can turbocharge our capabilities and growth on all three layers.”
Ramaswamy said the company has made remarkable progress in AI during the past year.
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“We believe AI is going to continue to fuel our platform, helping our customers perform and deliver customer experiences better than ever,” he said.
Snowflake reported first-quarter earnings of 14 cents a share, up 6% year-over-year, while the FactSet analyst consensus called for 18 cents. Revenue increased 33% from a year earlier to $828.7 million, exceeding FactSet’s call for $787 million in sales.
The company raised its sales guidance for the year but lowered its outlook for its operating margins, citing rising AI costs.
Snowflake guided for product revenue of $807.5 million at the midpoint of its range, while Wall Street was looking for $793 million.
The company raised its guidance for full-year product revenue to $3.3 billion, from an earlier forecast of $3.25 billion.
During the call, Chief Financial Officer Mike Scarpelli said Snowflake intended to acquire certain assets and hire key employees from TruEra. That’s an AI observability platform that gives users the ability to evaluate and monitor large-language-model applications and machine-learning models and production.
Scarpelli said Snowflake growth was strong in February and March and moderated in April. “We view this variability as a normal component of the business,” he said.
Investors seemed a bit skittish, however, and the shares were down 5.4% to $154.48 at last check.
Analyst says ‘profitability took a hit’
Analysts’ reactions to Snowflake’s results varied.
Needham lowered the investment firm’s price target on Snowflake shares to $210 from $240 but affirmed a buy rating after its first-quarter results.
The company outperformed buy-side expectations as a result of solid trends, and management noted strong consumption in February and March, before moderating in April.
Investor disappointment with the reduced operating and free cash flow margin guidance for fiscal 2025 is a “short-term view,” the firm added. Snowflake is investing in a rapidly evolving market to ensure long-term positioning, and has a number of new products coming to market later this year, Needham said.
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Bernstein analyst Mark Moerdler raised the firm’s price target on Snowflake to $185 from $171 and reiterated a market perform (effectively neutral) rating on the shares.
Moerdler noted that Snowflake delivered decent results and sent the stock up a bit in the aftermarket.
But the analyst said that he came away from the calls with two primary takeaways: raised 2025 revenue guidance and strong remaining performance obligations growth might overly inflate investor expectations; overall company and AI strategies are difficult to decipher and may not play out as desired.
(RPO at Snowflake is “deferred revenue and non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods.”)
The firm also notes that profitability took a hit with both GAAP and non-GAAP operating margins narrower in the quarter, and the full-year guidance for operating margin and free cash flow revised downward.
KeyBanc analysts boosted the firm’s price target on Snowflake to $200 from $185 and maintained an overweight rating on the shares following what it described as a solid first-quarter beat and raise.
The quarter highlighted Snowflake’s accelerated product innovation in AI and quelled some investor long-term concerns on the Iceberg data-storage platform, the firm says.
KeyBanc remains positive on Snowflake’s positioning as a data cloud leader benefiting from improving public cloud migration trends, a significantly expanding product portfolio, and the use of Snowflake’s easy-to-use platform for developing and hosting generative-artificial-intelligence workloads.
Scotiabank analyst Patrick Colville lowered the firm’s price target on Snowflake to $195 from $207 but affirmed an outperform rating on the shares..
In the firm’s customer checks, Snowflake’s users continue to view data warehousing as critical, with data migration to the cloud resuming and Snowflake a key beneficiary, Colville said.
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