Snowflake Is PLUNGING | Did the AI Bubble Just POP?

Summary

This video discusses the recent 20% stock drop for Snowflake after Q4 2024 earnings, and analyzes whether this signals an 'AI bubble' popping. It gives context around the CEO retirement, the strong quarterly metrics like 29% revenue growth and 41% increase in remaining performance obligations, as well as potential contributing factors to the share decline like lower than expected guidance likely tied to an overly conservative new CEO. It concludes Snowflake’s execution remains strong, with the stock drop presenting an opportunity, though dilution could still be a concern.

Takeaways

• 😊 CEO Frank Slootman is retiring but will remain chairman. He still owns $1.9 billion in Snowflake shares.
• 😮 Slootman selling $225M in shares is not insider trading, it was a pre-planned transaction.
• 📈 Revenue grew 29% and beat expectations. Margins also expanded nicely.
• 😐 Growth is slowing though. Guidance came in below expectations.
• 🤔 New CEO and management being very conservative with guidance.
• 👍 Net revenue retention still strong at 131%.
• 😎 Number of large customers spending over $1M up 40%.
• 🤑 Strong cash flow and balance sheet.
• 😕 Valuation still very expensive even after expected 20% drop.
• 🧐 If they can grow free cash flow 21% annually, today's valuation may be justified.

Q & A

Why is Frank Slootman retiring as CEO of Snowflake?

Frank Slootman is retiring from his role as CEO after 5 years. He will remain Chairman of the Board. His retirement seems planned, as Snowflake is hiring a new CEO, Sagar Ramaswamy, who previously worked as an executive at Google.

Why did Frank Slootman sell $225 million in Snowflake shares last quarter?

Slootman's share sale was pre-planned and approved ahead of time. He still owns around $1.9 billion in Snowflake shares after the sale, so it does not indicate lack of confidence.

Did Snowflake report strong financial results this quarter?

Yes, by most metrics Snowflake reported financial results that beat Wall Street estimates and their own guidance for the quarter. Revenue, margins, earnings, and cash flow were all up significantly year-over-year.

Why did Snowflake share price drop 20% after earnings?

The share price dropped because Snowflake issued lower than expected guidance for next quarter and full year revenue growth compared to analyst estimates.

Does the revenue guidance update indicate Snowflake's growth is slowing?

Not necessarily. Management stated they are being intentionally conservative in guidance to account for consumption pattern changes and exclude any potential upside from new product launches.

What metrics indicate the strength of Snowflake's business?

Key metrics to watch are net revenue retention over 120%, total & large customers, remaining performance obligations, and workloads from new products. These indicate Snowflake's market position and growth potential.

Does Snowflake have high valuation multiples?

Yes, on a price/earnings and price/cash flow basis valuation is very high. But a reverse DCF analysis shows revenue growth in the low 20% range could justify valuation.

Is the AI bubble bursting because of Snowflake?

No, Snowflake's results and guidance indicate controlled, managed growth not a bursting bubble. The new CEO is being set up to guide strong long term growth.

What should investors watch for next with Snowflake?

Guidance updates, customer & workloads metrics, free cash flow margins. These will indicate if growth re-accelerates and new products gain traction over next few quarters.

Does the analyst have confidence in Snowflake still?

Yes, the overall tone indicates continued long term confidence in Snowflake's market position, differentiation, and growth potential despite near term speed bumps.