Snowflake’s Earnings Report Shows Slowing Growth, Sending Shares Down
Snowflake, a leading data cloud analytics company, saw its shares plummet over 14% on Thursday after its fiscal second-quarter 2025 earnings report revealed slowing product revenue growth despite beating Wall Street’s expectations. While the company surpassed revenue forecasts, with $869 million in revenue compared to the anticipated $851 million, its product revenue growth slowed to 30% year-over-year, down from the 34% year-over-year jump reported during the first quarter. This deceleration in growth, coupled with a widening net loss, has raised concerns among investors about the company’s future trajectory.
Key Takeaways:
- Snowflake’s Q2 earnings beat revenue expectations but missed on growth: While exceeding revenue forecasts, the company’s product revenue growth slowed, signaling potential challenges in maintaining its rapid expansion.
- Widening net loss raises concerns: Snowflake’s net loss expanded to $317 million in Q2, compared to $227 million in the same period last year. This widening loss could further fuel investor apprehension.
- Generative AI portfolio offers potential future growth: Analysts believe that Snowflake’s budding generative artificial intelligence portfolio could eventually drive top-line performance, but for now, the company will rely on its core data warehousing business for growth.
- Cyberattack and CrowdStrike outage did not significantly impact results: The company’s earnings were not impacted by a cyberattack and the CrowdStrike outage that occurred during the quarter, alleviating some investor concerns.
Decelerating Growth Sparks Investor Concerns
While Snowflake’s revenue beat estimates, the deceleration of product revenue growth has become a focal point for investors. Analysts at Morgan Stanley highlighted this concern, stating that although the results were "good," they were "perhaps not enough." They believe that the slower growth and smaller product revenue beat won’t inspire investors who are currently wary of the market.
"A 2% product revenue beat in Q2, down from 5% in Q1, with product revenue growth dipping further to 29.5% YoY," likely sows "enough doubt in the investor conversation to keep shares under pressure in the near-term," stated the Morgan Stanley analysts in a note.
Analysts at Barclays took a more neutral stance, suggesting that the second-quarter results wouldn’t be a major catalyst for investment in either direction. They maintained their "equal weight rating" on the stock. They did acknowledge that the absence of a significant revenue impact from the cyberattack and CrowdStrike outage was a positive sign for the company.
"True, 30% y/y product growth is slower than the 33-34% level we saw the past 2 quarters. However, against all the fear going into these results we see the 30% level and raised guide as very respectable, especially given the lower valuation," wrote the Barclays analysts.
Generative AI: A Hope for Future Performance
Snowflake’s foray into the generative AI space has become a beacon of hope for investors. While this new portfolio is still in its early stages, analysts believe it has the potential to significantly contribute to future growth.
"We think Snowflake’s generative AI portfolio will eventually contribute to topline outperformance. In the meantime, it will have to rely on its core data warehousing business," noted Morgan Stanley analysts.
Snowflake’s generative AI capabilities could present a competitive advantage by enabling users to analyze and extract insights from complex datasets more efficiently. The potential for AI-driven data analysis could significantly enhance the value proposition of Snowflake’s platform and attract new customers.
Navigating Challenges and Capitalizing on Opportunities
Snowflake is facing a complex landscape with evolving market dynamics, economic uncertainties, and technological advancements. While the company’s Q2 results showcased its ability to overcome certain challenges, the slowing product revenue growth highlights the need for continued innovation and strategic initiatives.
The company’s commitment to expansion into new markets, including international expansion and industry-specific solutions, will be crucial for sustained growth. Additionally, Snowflake’s investments in research and development are critical for further strengthening its competitive position in the rapidly evolving data analytics space.
Snowflake’s ability to leverage its core data warehousing expertise, coupled with its foray into generative AI, will be essential for navigating these challenges and capitalizing on the opportunities ahead. While the recent earnings report might have instilled some uncertainty among investors, Snowflake’s continued focus on innovation and market expansion could ultimately lead to a more positive future trajectory.
