Snowflake Earnings: Stabilized Consumption, but Not Yet Recovery; Shares Attractive

Snowflake’s second quarter was a solid one, as revenue came in line with our expectations and GAAP EPS was slightly below our forecast. However, we baked in rosier expectations on the top and bottom line than consensus. As a result, shares are up 3% upon results due to the bigger beat relative to consensus. While we have moderated our expectations for the remainder of the year as we bake in continued consumption stabilization as seen in the quarter, we think Snowflake will see top-line reacceleration next year—as several new offerings will be released soon (including containerized services). We are maintaining our fair value estimate of $231 per share for no-moat Snowflake and we believe ample upside is still very much on the table, making Snowflake a top pick in the technology sector, in our view. Altogether, we believe the market is significantly discounting Snowflake's potential by underestimating three key areas: datasphere (total data in existence) growth, how differentiated Snowflake's technology is, and the powerful potential of Snowflake's small but mighty data marketplace. We think Snowflake’s consumption model spooks the market but we think switching costs inherent in the data storage space don’t need a formal subscription model to reap value.