Although data company Snowflake has strong product offerings, ongoing overhangs leave Wolfe Research with less conviction in the company’s future. “When we launched coverage in April 2022. … we were upbeat on SNOW having the best management team in software, best product, and best growth rate (potential ~50% revenue growth in CY24). While we still see all the above as possible, the current valuation does not leave much room for error, all while the macro has worsened, the competitive landscape has changed, and the growth outlook is very different,” analyst Alex Zukin wrote in a note on Thursday. Zukin downgraded Snowflake shares to peer perform from outperform. He also removed his price target, which was previously at $160. The stock closed at $147.91 after Thursday’s trading session. The analyst said macro overhangs have reduced the company’s growth expectation from 47% product revenue growth in the 2024 fiscal year, to 34% year-over-year growth. “We also see growing competition from Databricks & Microsoft who are clearly competing for the same workloads, mindshare and dollars, possibly creating incremental execution headwinds,” Zukin added. He noted that the growth of large language models and generative AI applications have caused a shift in the enterprise data storage and data infrastructure industry. To be sure, he is still optimistic about the company’s management — calling it “the best management team in software” — as well as a best software-as-a-service product. Snowflake shares ticked down 0.6% Friday before the bell. Shares are up just 3% in 2023, lagging behind the S & P 500’s gains. Meanwhile, the stock has jumped more than 16% over the last 12 months. “We further look for better visibility of near and long term growth at the current valuation,” Zukin said. —CNBC’s Michael Bloom contributed to this report.
