has set a target of reaching $10 billion in annual product revenue by fiscal 2029, the cloud data software company said today in its first meeting with analysts since its initial public offering last year. The company had $554 million in product revenue for the January 2021 fiscal year.
In a presentation kicking off the virtual meeting,
Snowflake’s chief financial officer, said the company now sizes its total addressable market at $90 billion, up from the $81 billion used during the roadshow for the IPO.
Investors don’t seem impressed by the long-range target. Snowflake shares are down 4% in after hours trading Thursday.
In his talk, Scarpelli walked through how the company expects to reach the $10 billion revenue goal. He says Snowflake foresees the business driven by a growing number of customers generating more than $1 million each in annualized revenue. Scarpelli says the model anticipates more than 1,400 customers at that size by fiscal 2029, up from 77 in the latest year.
Snowflake anticipates average annual revenue for those large customers will grow to $5.5 million, from $3.4 million in the latest year. Scarpelli says the company expects revenue from those large customers to account for 77% of revenue by the end of the forecast period, up from 47% in the latest year.
Scarpelli added that Snowflake believes it will still be growing product revenue at a 30% rate by the end of the period. Snowflake expects non-GAAP product gross margin to be 75% by fiscal 2029, up from 69% recently. He says by the end of the target period the company expects to have 10% operating margins and free cash flow margins of 15% or higher.
Snowflake went public in September at $120 a share, opened for trading at $245, and touched $429 at one point last year. The stock then reversed course, falling as low as $184.71 a month ago, before a recent surge pushed the price back above its first day opening trade, into the $250 range. It is losing some of those gains late Thursday.
The stock remains the subject of a vigorous tug of war between bulls who love the company’s rapid growth and bears who find the valuation extreme, even after the recent slide.
For its fiscal first quarter, ended April 30, Snowflake had an operating loss of $35.8 million, but posted revenue of $228.9 million, up 110% from a year ago and ahead of the Wall Street consensus forecast of $213 million. Product revenue, the company’s preferred performance measure, was $213.8 million, also up 110%.
Remaining performance obligations, an indicator of future growth, came in at $1.4 billion, up 206%. The net retention rate, which tracks trends in contract renewals less customers lost, was 168%.
The stock has rallied about 10% since the earnings announcement on May 26.
In an interview with Barron’s after that earnings news, CFO Scarpelli said the company continues to report unprecedented growth, while increasing its gross margin on product sales to more than 72% in the quarter, from the low 60s a few years ago. He said the company was cash flow positive for the second straight quarter. Snowflake expects to break even in terms of free cash flow on an annual basis for the first time this year.
Asked about the company’s long-term growth expectations, Scarpelli had foreshadowed that he would address the topic at the analyst meeting. There is “a massive market opportunity … we’re at the right place and right time with the digital transformation … everyone is moving data from on-premise to the cloud,” he said.
In a research note previewing the meeting, Mizuho analyst Gregg Moskowitz laid out a case for his bullish stance on the stock.
“Although Snowflake trades at a substantial premium, we believe the shares have meaningful upside potential and are likely to outperform as the company continues to grow at elevated rates,” he said, repeating his Buy rating and $300 target price. “We continue to believe Snowflake’s cloud-based platform is substantially ahead of the competition at this time, and that its technological proficiencies are very difficult to replicate at scale.”
In a note reviewing the recent earnings report, Evercore ISI Kirk Materne said he thinks the analyst day and user conference “should help illustrate the large opportunity still in front of the company, especially as it relates to the data sharing ecosystem.” While he noted that the stock could be stuck in neutral for a while while it “continues to grow into its valuation,” Materne remains a long-term bull. He rates the stock at Outperform and has a target of $311 for the price.