The Ratings Game: Snowflake is ‘a growth company with rapidly slowing growth,’ analyst says as stock melts

by | Mar 2, 2023 | Stock Market

Snowflake Inc.’s slashed revenue forecast shows there isn’t much leeway these days for pricey software stocks. Shares of Snowflake
were tumbling 13% in morning trading Thursday after the data-warehousing company said that it expects 40% revenue growth this fiscal year, whereas the company was previously targeting 47% growth for the period.

“Snowflake is a growth company with rapidly slowing growth, which would hurt the near-term prospects for the stock,” Bernstein’s Mark Moerdler said in a note to clients following Wednesday afternoon’s report. “While the company is trying to improve the profitability profile, it may not be sufficient to offset the impact from growth deceleration.” In his view, a deterioration of the economic landscape “is certainly impacting Snowflake’s growth,” but “a meaningful portion of [the company’s] growth deceleration is due to [a] non-macro-related consumption slowdown.” Moerdler reiterated a market-perform rating on Snowflake shares while reducing his price target to $157 from $161. Snowflake announced a $2 billion buyback program over the next two years that management expects will help manage dilution related to stock-based compensation, but Guggenheim analyst John DiFucci wasn’t sold on the move. “Although the company has more than $4B in cash and cash equivalents on the balance sheet, we question if this is the best use of cash for a hypergrowth company, especially considering the company remains the most expensive software stock in the entire market,” he wrote, while maintaining a sell rating on the stock. See also: Snowflake plans to hire 1,000-plus workers this year as other tech companies cut Elsewhere, Snowflake found defenders. “Despite the mixed results, with guidance that is better than peers but lower than expected, Snowf …

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