Snowflake Piles Up a Nice Q1, but Shares Plowed Through Due to RPO Concerns; Now's the Time to Buy

No-moat Snowflake started its fiscal 2023 with a storm. Results nicely topped our in-house expectations as revenue surged and operating losses as a percentage of sales tapered off faster than we expected. As guidance slightly increased for fiscal 2023, we believe the market's after-hours reaction of shares plummeting 13% is unwarranted. We think that the sequential decline of remaining performance obligations was a catalyst for the sharp sell off. Nonetheless, we are not discouraged by the movement, as the previous quarter had outperformed bookings—leading to a tough compare. As a reminder, Snowflake's model is a consumption-based one, opposed to a SaaS model, but we do not believe that hampers switching costs, as we think that data lake and warehouse software is naturally very sticky, and thus, does not require formal contracts to lock in customers.