Revenue projection is difficult, so we prefer to give conservative advice


Snowflake CEO Frank Slootman told CNBC’s Jim Cramer on Wednesday that the company prefers to give conservative guidance, saying the way it recognizes revenue creates considerable uncertainty when making a forecast.

Slootman’s comments in a “Mad Money” interview came after the data analytics firm released fourth quarter and fiscal year 2022 results. Its stock was crushed by trading expansion, falling 30 % at one point before recovering somewhat to drop around 22%.

Investors were dealing with the company’s slowest revenue growth since at least 2019, along with its guidance for fiscal 2023. Snowflake said it expects product revenue to grow between 65% and 67% in the fiscal year, just around the 66% growth analysts expected, according to FactSet. This would represent a significant slowdown compared to previous years.

“We take a data-driven approach, which is what you expect from a data management company. We don’t stick our finger in the wind and say, ‘Well, we think that’s going to be it'” , Slotman said. “That’s not how we do things, so we prefer to take a conservative stance and be able to get things done.”

In fiscal 2022, Snowflake’s product revenue — which accounts for the bulk of its overall sales — jumped nearly 106%, according to its earnings presentation on Wednesday.

Slootman noted that Snowflake ended up exceeding the fiscal year 2022 product revenue guidance provided by the company on March 3, 2021. In that quarterly report, Snowflake forecast product revenue growth of 82% on a year-over-year basis.

“Consumption model”

Frank Slootman, CEO of Snowflake, on the day of its 2020 IPO. He is known as a demanding leader and straight shooter. “I’ve been to board meetings many times at other companies and the CEO will come up with a list of 10 priorities… well, that’s the same as having no priorities,” he said. he recently told CNBC.

CNBC

Snowflake tracks revenue using a “consumption model,” Slootman said, rather than a typical subscription model that’s common in the software industry. It may take time for investors to understand how this affects its results and its ability to forecast several quarters into the future, Slootman said.

“We report revenue on what people actually consume during the quarter. We have tons and tons of customers that we have no history with that we kind of have to predict exactly what they’re going to do and how they’re going to develop,” he said.

Snowflake’s cloud-based software enables customers to search and analyze large amounts of data, with the ability to scale capacity as needed. Snowflake had 5,944 total customers at the end of its 2022 fiscal year, up 44% from the prior year.

“In a consumer model, it’s not the same as a [software-as-a-service] model where things are under contract, and it has a very different cadence. In time, people will understand. They’ll grow with it, get used to it, I hope,” said Slootman, a tech industry veteran who previously ran ServiceNow.

He helped take Snowflake public in September 2020, in what was at the time the biggest software IPO ever.

Shares of Snowflake are down about 22% year-to-date, excluding Wednesday’s after-hours move. The stock’s troubles come as Wall Street has focused on more defensive parts of the market and moved away from unprofitable, growth-oriented companies like Snowflake.

Register now for the CNBC Investing Club to follow Jim Cramer’s every move in the market.

Warning

Questions for Cramer?
Call Cramer: 1-800-743-CNBC

Want to dive deep into the world of Cramer? Hit it!
Crazy Money TwitterJim Cramer’s Twitter -Facebook-Instagram

Questions, comments, suggestions for the “Mad Money” site? [email protected]




cnbc Business

Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.
Back to top button