Snowflake’s Earnings Report Sparks Stock Surge

Snowflake‘s (NYSE: SNOW) stock jumped 33% on Nov. 21 after the company delivered a strong earnings report. For the third quarter of fiscal 2025, which ended on Oct. 31, Snowflake’s revenue increased by 28% year over year, reaching $942.1 million. This result beat analysts’ expectations by $43.6 million. Although adjusted net income fell 19% to $73.2 million, or $0.20 per share, it still surpassed the consensus forecast by five cents.

Looking ahead, Snowflake predicts its product revenue, which makes up most of its total, will rise by 29% for the full year. This new estimate is higher than the previous forecast of 26% but represents the slowest growth rate since its IPO in 2020.

Image source: Getty Images.

Snowflake’s recent earnings report has attracted new investors, yet its stock remains nearly 60% below its peak. This raises the question: Could this latest financial performance signal the start of a new upward trend for investors?

Snowflake’s Business Maturation

Snowflake provides cloud-based data warehouses that help large organizations consolidate their data into a single accessible location. This process allows companies to break down barriers between various computing platforms, facilitating data-driven decision-making.

Its services operate on major platforms like Amazon Web Services (AWS) and Microsoft Azure, and feature flexible plans that charge customers based on their actual usage. This model contrasts with other providers that require customers to commit to fixed subscriptions.

While Amazon and Microsoft also offer integrated cloud data solutions, Snowflake’s compatibility with various platforms and flexible pricing make it a popular choice for companies seeking independence from major tech ecosystems. This is evident by the fact that its annual product revenue more than doubled in both fiscal 2021 and fiscal 2022, which ended in January 2022.

However, its product revenue growth has decelerated. After a notable 70% increase in fiscal 2023, it cooled to 38% growth in fiscal 2024. The net revenue retention rate, which indicates how much existing customers are spending year over year, declined from 168% in fiscal 2021 to just 131% in fiscal 2024. Both metrics continued to decrease in fiscal 2025.

Data source: Snowflake. YOY = Year over year.

Snowflake, similar to other cloud software firms, attributed the slowdown to broader economic challenges. It also faces tough competition from more aggressive start-ups like Databricks, alongside large player offerings from Amazon and Microsoft.

On a positive note, Snowflake’s net retention rate showed some stabilization in the third quarter as long-term customers began using its new products. The booming AI market is also supporting the growth of its Cortex AI platform, which assists companies in processing data and developing generative AI applications. These new initiatives have encouraged the company to raise its full-year product revenue forecast.

Margins Are Beginning to Stabilize

Snowflake’s adjusted margins for product operations and free cash flow slipped as revenue growth slowed. However, in the third quarter, these metrics either held steady or improved sequentially.

Data source: Snowflake.

During the earnings call, CEO Sridhar Ramaswamy credited the stabilization to a “more rigorous approach to cost management,” cutting “redundant management layers,” and utilizing “AI to drive higher efficiency while reducing overall expenses.”

For the year, the company anticipates an adjusted product gross margin of 76%, an adjusted operating margin of 5%, and an adjusted free cash flow margin of 26%. Although these figures reflect declines from fiscal 2024, they may stabilize at current levels.

Is Snowflake a Potential Millionaire-Maker Stock?

While Snowflake is experiencing growth, its business is maturing, and it continues to be unprofitable according to generally accepted accounting principles (GAAP). Trading at 12 times this year’s sales, the stock is not considered a bargain, despite the company investing significantly in buybacks to counter it.

This could explain why Warren Buffett’s Berkshire Hathaway divested its entire stake in Snowflake this year, along with insiders selling nearly four times as many shares as they purchased in the past year.

Analysts predict that Snowflake’s revenue will grow at a compound annual growth rate (CAGR) of 24% from fiscal 2024 to fiscal 2027. If the company meets these projections, continues at a 20% CAGR for the following 13 years, and trades at around 10 times sales, its market cap could rise 1,240% to $580 billion by fiscal 2040.

Such a surge could turn a $75,000 investment into over $1 million; however, it’s uncertain whether the company can maintain this trajectory amid growing competition in the data warehousing sector. While Snowflake could eventually present an opportunity for substantial returns, investors may need to practice patience.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun has positions in Amazon and Berkshire Hathaway. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, Microsoft, and Snowflake. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

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