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Snowflake (SNOW -19%) is melting today, returning to 2024 lows despite exceeding earnings and sales forecasts in Q4 (Jan). A surprise exit by former CEO Frank Slootman, who will remain Chairman, persistent revenue headwinds, and growing conservatism from management due to the previous year's consumption patterns are generating a storm of selling pressure. Additionally, SNOW commented that to get back on track to its longer-term financial goals, it needs consumption patterns to revert toward pre-FY24 trends, a development that has yet to unfold.

There's no doubt 2023 was a turbulent year for SNOW despite shares running roughly +60% higher -- although nearly all of these gains started in late October following speculation over multiple rate cuts this year. Revenue growth was stuck in a decelerating pattern as consumption faded in light of heightened macroeconomic uncertainty. SNOW's business model is based on user consumption instead of a recurring annual fee, making it much more susceptible to economic volatility.

• While the macroeconomic backdrop remains unsettled, SNOW still finished FY24 strong, delivering 150% earnings growth yr/yr to $0.35 and 31.5% revenue growth to $774.7 mln in Q4, above analyst expectations. SNOW registered firm bookings in the quarter, delivering a 41% jump in remaining performance obligations (RPO) yr/yr to $5.2 bln, an acceleration from the 23% increase in Q3 (Oct). While bookings are not a leading indicator of revenue, SNOW stated that the metric points to an improving macroeconomic environment.
• Revenue growth was led by younger accounts, which are adding new workloads and migrating from legacy vendors. Financial services and retail were SNOW's top contributing verticals in the quarter. Meanwhile, promising momentum from EMEA emerged during Q4; management mentioned that its international regions outperformed expectations for the first time in a year.
• Generative AI will be front and center in SNOW's long-term strategy, which is largely why Frank Slootman decided to step down as CEO. Mr. Slootman commented that due to the onslaught of Gen AI, SNOW needs a hard-driving technologist to navigate the challenges of the new technology. As a result, Mr. Slootman passed the reins off to Sridhar Ramaswamy, a former Google (GOOG) employee and the founder of AI-powered search engine Neeva, which was acquired by SNOW last year.
• Looking ahead, SNOW expects FY25 product revenue growth of 22% yr/yr, a sharp slowdown from the +38% increase in FY24, and non-GAAP operating margins of 6%, down 200 bps yr/yr. The company's guidance assumes customer behavior similar to that of FY24.

After starting to mount a comeback at the end of October, further accelerated by uplifting Q3 (Oct) results in late November, SNOW's upward momentum was snapped today after Q4 results and FY25 guidance revealed stubborn headwinds. Investors were also taken aback by the departure of Frank Slootman as CEO. Ultimately, today's reaction may be overblown, especially given the track record of newly-minted CEO Sridhar Ramaswamy. Also, a conservative outlook could lead to meaningful outperformance down the line.