Snowflake (SNOW -2.85%), a leader in cloud-based data solutions, released its earnings for the fourth quarter of fiscal 2025 on February 26, 2025. The company reported earnings per share (EPS) of $0.30, surpassing analyst expectations of $0.18 by $0.12, a 66.7% surprise. Revenue for the quarter reached $986.8 million, beating the estimate of $956 million. Overall, this quarter demonstrated Snowflake's operational effectiveness, although it continues to face challenges with operating losses.
| Metric | Q4 FY2025 | Q4 Estimate | Q4 FY2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (Non-GAAP) | $0.30 | $0.18 | $0.35 | -14.3% |
| Revenue | $986.8M | $956M | $774.7M | +27.4% |
| Product Revenue | $943.3M | N/A | $738.1M | +27.8% |
| Free Cash Flow | $415.4M | N/A | $324.5M | +28.0% |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in 2024-11-20 earnings report.
Overview of Snowflake's Business
Snowflake operates as a cloud-based data platform with a focus on data storage, processing, and analytics services. It significantly benefits from network effects as more organizations join its platform, enabling rich data sharing capabilities. Snowflake's consumption-based business model, where customers pay according to their usage, is integral to its growth strategy.
Recently, Snowflake has been emphasizing network effects, which enhance data collaboration within the Snowflake ecosystem, and its consumption-based model that aligns revenue generation with client usage and encourages scalability. Critical success drivers include strong customer retention, growing industry-specific solutions, and expanding market presence.
NYSE: SNOW
Key Data Points
Quarterly Highlights
This quarter, Snowflake showed notable financial achievements by exceeding both analyst and internal management expectations. With a reported EPS of $0.30, the company outperformed its guidance of 4% operating income margin, achieving a 9% margin instead. Product revenue was a standout, reaching $943.3 million, and surpassing the guidance range of $906 million to $911 million, indicating a strong 28% year-over-year increase.
Snowflake also saw a rise in its net revenue retention rate of 126%, reflecting strong customer retention and broader usage, although this figure was slightly down from 131% the prior year. Growth in its customer base was evident, with a 27% increase in customers generating over $1 million in annual revenue, totaling 580. The gross profit margin improved as well, signaling effective cost management amidst rising operating expenses.
During the quarter, Snowflake focused on enhancing industry-specific data clouds, including Healthcare and Financial Services, to better serve niche markets. These vertical expansions are part of its plan to increase penetration in existing and new markets. However, the company reported a GAAP operating loss of $386.7 million, consistent with ongoing investments in expanding its ecosystem and diversifying its product range.
Despite these developments, persisting operating losses and macroeconomic concerns in the tech sector posed ongoing challenges. Concerns regarding high capital expenditures in tech might affect investor sentiment and Snowflake's operating losses a continued point of concern. Nonetheless, the company remains committed to its strategic directions, striving to capitalize on its strength and presence in the industry.
Looking Ahead
For Fiscal 2026, Snowflake's management projects continued strong performance, with estimated product revenue expected to reach approximately $4.28 billion. Snowflake aims for a product gross profit margin of 75% and operating income margin of 8%, signaling a focus on efficiency gains.
With ongoing developments in industry-specific solutions and enhanced network effects, Snowflake is well-positioned for future growth. Investors should keep an eye on how Snowflake manages its operating losses while leveraging network effects and consumption-based pricing to enhance value for its customers. Management remains optimistic about the company's trajectory despite market uncertainty.
