Snowflake Q3 Preview: Cloud Optimization Headwinds In Focus, Earnings Volatility Expected

Snowflake Inc SNOW, will be reporting its third-quarter earnings on Nov. 29. The Street expects Snowflake to report 16 cents in EPS and $713.42 million in revenue, as it publishes its Q3 print, after market hours.

The company’s key offering is a scalable, efficient cloud-based data warehousing platform. Snowflake’s platform enables organizations to store and analyze large volumes of structured and semi-structured data. Thus, businesses can run complex queries across multiple cloud platforms. Key customers include Mastercard MA, Honeywell HON and Disney DIS.

Here's what analysts will be focusing on, and how the stock currently maps against Wall Street estimates.

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Business & Fundamentals: As an AI play, Snowflake appears positioned for long-term success if headwinds further diminish.

Snowflake’s innovative approach places it at the forefront of significant trends in generative AI and related tools. The company introduced Snowflake Cortex, a user-friendly service enabling both technical and non-technical users to analyze data and build AI applications. A standout feature is the “Universal Search” function, streamlining data location within the data lake, with a ChatGPT-style bot facilitating easy answers to business queries.

Q3 Analysts' Focus: Snowflake faces optimization challenges, but consumption headwinds are easing. A return to normal consumption growth and new product introduction should support growth. AI benefits are expected, but the impact is uncertain.

Additionally, Snowflake stock is trading at a P/E of 246 currently. The high valuation creates downside risk if growth doesn’t stabilize. The company’s outlook may be limited unless growth stabilizes.

Ratings & Consensus Estimates: Consensus analyst ratings for Snowflake stock stand at a Buy with a price target of $183.27.

Morgan Stanley Research analyst Sanjit Singh sees Snowflake well positioned given the multiple avenues for growth. However, he cautions that the potential for Retrieval Augmented Generation (RAG) applications might encounter increased competition. Morgan Stanley has a $215 price target on Snowflake stock.

Piper Sandler analyst Brent A. Bracelin expects earnings volatility to continue as Snowflake reports Q3 earnings. The biggest debate for those analyzing the company will be tied to whether cloud optimization
headwinds that have pressured growth for more than a year begin to abate, he said.

Price Action: Shares of Snowflake finished 0.73% higher at $171.55 on Tuesday.

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