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The Ratings Game

Dec. 2, 2021, 5:07 p.m. EST

Snowflake stock surges to best day in a year after ‘phenomenal’ earnings

By Emily Bary

Shares of Snowflake Inc. sported their best performance in a year after the software company’s latest earnings report was met with a flurry of praise.

Snowflake shares (NYS:SNOW) rose 15.9% in Thursday trading to record their largest single-day percentage gain since Dec. 3. 2020, when the stock increased 16.1%. The company saw its revenue more than double in the most recent quarter and sent what analysts viewed as an optimistic signal about its future pipeline.

“Large deal activity appears to be building, and international markets are picking up momentum,” wrote Mizuho analyst Gregg Moskowitz. “More broadly, we maintain that SNOW’s offerings are substantially ahead of the competition at this time.”

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Moskowitz keyed in on commentary from Snowflake’s management team noting that the company had a “breakout quarter” for bookings and consumption, even though some of its outperformance came from stronger-than-expected consumption by Snowflake’s largest customers. Overall, he called Snowflake’s results “phenomenal.”

“We continue to believe we’re in the early stages of a powerful trend in which companies will largely standardize on SNOW’s platform,” Moskowitz concluded, while reiterating a buy rating and $450 price target.

The company’s performance prompted Citi Research analyst Tyler Radke to upgrade Snowflake’s stock to buy from neutral.

“We think SNOW is at an inflection point following very strong Q3 results and positive checks from AWS re:Invent where we saw signs of budget unlock in large enterprise cloud deals and a more favorable competitive/partnership environment,” Radke wrote in a note to clients.

He argued that Snowflake “can continue an ‘improved cadence’ of beat/raises given the significant deceleration implied in Street estimates in FY22, where the Street models just 65% product growth vs. the 110% reported.” Radke upped his price target to $470 from $299.

Evercore ISI’s Kirk Materne was upbeat about Snowflake’s reacceleration in product revenue growth during what he called a “monster quarter” for the company.

“While the bigger-than-expected beat was driven by strong consumption from some of SNOW’s larger customers, the upbeat guide for F4Q product revenue (+94-96%) helps illustrate that the trends in the business are durable and why Snowflake remains one of the really unique hyper-growth stories in software,” he wrote.

Snowflake “is not going to be immune to more market gyrations” if the macroeconomic landscape stays “volatile,” Materne continued, but he likes the company’s long-term prospects. He rates the stock at outperform, and boosted his price target to $400 from $380.

Among the high points for Oppenheimer’s Ittai Kidron was that Snowflake posted its first quarter on record of positive adjusted earnings while sporting a net revenue retention rate above 170%.

“We see a long trajectory of rapid revenue increases for the next few years fueled by an [information technology] shift to a cloud-centric model, digital transformation, and higher spend on [machine learning]/data science,” he wrote in a note to clients, while reiterating his outperform rating and lifting his target price to $400 from $360.

Shares of Snowflake have increased 28% so far this year as the S&P 500 (S&P:SPX) has gained 22%.

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