Cloud data warehouse provider Snowflake Inc. beat expectations on revenue and earnings in its fiscal fourth quarter today, but a weak forecast sent the stock down more than 7% in initial after-hours trading.

Quarterly revenue rose 59% from a year ago, to $589 million, ahead of the average analyst estimate of $576 million. Product revenue of $555 million beat consensus estimates of $542 million.

Adjusted earnings rose 40%, to 14 cents a share, well ahead of consensus forecasts of four cents. The net revenue retention rate, or recurring revenue generated from existing customers, was a remarkable 158% but still down from 177% a year ago. The company said it closed the quarter with 330 customers with trailing-12-month product revenue of greater than $1 million, up from 184 a year ago.

Bookings decline

However, Snowflake is suffering from the same slings and arrows as nearly every technology company right now as customers spend more cautiously and pare back on long-term contracts. Multiyear bookings declined 15% year-over-year. More importantly for the most recent quarter is that the company converted just 90% of its pipelined bookings compared with a historical fourth-quarter figure of 140%.

“Most bookings in Q4 were customers buying just enough capacity to get them through,” said Chief Financial Officer Michael Scarpelli. “Some deals we did not land and those will be deferred into the second half.”

The surprise slowdown prompted the company to lower its fiscal first-quarter product revenue forecast to between $568 million and $573 million, lower than the analysts’ consensus of $582 million. Snowflake now expects to book $2.705 billion in product revenue for the full year, up 40% from a year ago but down from the 47% growth it forecast in November and below the consensus estimate of $2.826 billion.

The company’s product revenue growth rate has slowed from 70% in fiscal 2023 and 106% in fiscal 2022. At the same time, product gross profit margins have grown 2% in that time.

Productivity issues

Scarpelli admitted that the company had some “productivity issues” with some of its sales representatives in international markets but said sales to large and North American enterprises were on track. “We will deploy resources where we think we can get those resources productive over the next few months,” he said.

For the full fiscal 2023, Snowflake reported product revenue rose 70%, to $1.9 billion. Chief Executive Frank Slootman said the company isn’t changing its goal of reaching $10 billion in full-year product revenue in fiscal 2029.

“We are operating in a vast and growing market, prioritizing capabilities that support the core mission of the enterprise, and staying on track for our $10 billion product revenue goal,” he said in a statement.

The company noted that its adjusted free cash flow of $215 million was more than double the $102 million reported in the fourth quarter of last year. The adjusted free cash flow margin of 25% was up from 23% last year and is an indication that the company is slowing its emphasis on growth in favor of profitability. Gross margins improved to 75% from 69% in fiscal 2021.

On the company’s earnings call, executives indicated that they have seen behavior change among its newer customers. “New large customers are very methodical in the way they do things, unlike some of the earlier customers who were doing everything possible to get on Snowflake as soon as possible,” Scarpelli said. “Customers are still consuming. They are just not growing at the rate they were.”

Remaining performance obligations, which are a measure of the total future performance obligations arising from contractual relationships, were $3.65 billion in the quarter, up from $2.65 billion a year ago.

Despite the spending slowdown, Scarpelli said the long-term growth outlook is unchanged. “Customers have very methodical deployment plans, which is slowing things down, but we’re not seeing customers materially decreasing their spend,” he said. “They continue to grow with us, albeit at a slower pace.”

Photo: Robert Hof/SiliconANGLE