Shares of cloud-based data lake provider Snowflake (NYSE: SNOW) were in rally mode Monday even on a quite muted day for a lot of tech stocks. Shares were up 4.8% as of 1:30 p.m. EDT.
Snowflake’s outperformance is probably going resulting from a positive note issued by analysts at Goldman Sachs, who added the stock to the firm’s “Conviction List” today.
Goldman likes Snowflake’s entry point and innovation pipeline
Goldman analyst Kash Rangan added Snowflake’s stock to the firm’s “Conviction List” today. Rangan’s case is that he believes the recent weakness within the stock makes for an “attractive entry point,” provided that the stock is down for the yr, even while Rangan is optimistic in regards to the company’s latest CEO Sridhar Ramaswamy. Rangan believes Ramaswamy, who’s a more product-oriented manager than the corporate’s previous head, can speed up Snowflake’s innovation engine to thrive within the AI era.
Of note, Ramaswamy co-founded AI search start-up Neeva in 2019, which Snowflake acquired last yr, bringing Ramaswamy into Snowflake. Since then, he’s been heading Snowflake’s artificial intelligence (AI) strategy, including the event of Snowflake Cortex, a completely managed service that simplifies using Snowflake for AI applications. At the top of February, he was appointed CEO as former CEO Frank Slootman stepped back into the chairman of the board role.
Can Snowflake grow into its valuation?
Prior to the Goldman note today, Snowflake was about $135 per share — not too far off from its $120 initial public offering (IPO) price back in September of 2020, nearly 4 years ago.
It is not that Snowflake the business hasn’t performed well. Last quarter, core-product revenue surged 34%, and remaining performance obligations, which consider latest capability to be consumed and recognized by Snowflake in future periods, accelerated 46%. Net retention, meaning how much existing customers used last quarter in comparison with the prior-year quarter, got here in at a healthy 128%.
Still, there are worries. Management has guided to simply 24% product-revenue growth for the total fiscal yr, implying a deceleration. RPO was a brilliant spot relative to a yr ago but actually barely down from the prior quarter. And a net-retention rate of 128% actually marks a continued deceleration and the bottom figure in Snowflake’s history as a public company.
With Snowflake having traded extremely expensively its entire life as a public corporation, it’s still not particularly low cost at 15 times sales. So while Rangan could also be taking a look at Snowflake’s stock being down near its IPO price as a great entry point, take note the stock is just not particularly low cost overall. The brand new CEO can have to find a way to reaccelerate growth through AI innovation to ensure that the stock to have material upside.
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Billy Duberstein and/or his clients haven’t any positions in any of the stocks mentioned. The Motley Idiot has positions in and recommends Goldman Sachs Group and Snowflake. The Motley Idiot has a disclosure policy.
Why Snowflake Rallied Today to Start July was originally published by The Motley Idiot