(Bloomberg) -- Snowflake Inc. gave a product sales outlook for the current quarter that beat expectations, fueling hope that revenue has stabilized after the software maker experienced a dramatic slowdown in growth during the past year.
Product revenue will increase about 30% to as much as $721 million in the period ending in January, the company said Wednesday in a statement. Analysts, on average, estimated $702.2 million, according to data compiled by Bloomberg. Product sales make up the majority of Snowflake’s total revenue and are watched closely by investors.
Snowflake’s revenue expansion has slowed from quarterly gains of more than 80% over the last year as many companies began to scrutinize their spending on software. The company is particularly sensitive to changes in economic sentiment because it charges customers based on how much they use Snowflake’s data analysis products, rather than requiring multiyear subscriptions common among other software vendors.
The shares rose about 7% in extended trading after closing at $175.32 in New York. The stock has increased 22% this year, lagging behind the overall software industry as investors were concerned about the slipping sales growth.
Chief Executive Officer Frank Slootman cited a “broadly stabilizing macro environment,” for the company’s strong results and outlook.
“What you’re seeing is a resurgence in software,” said Jeffries Analyst Brent Thill in an interview on Bloomberg Television, noting that usage of the company’s product, and thus revenue, should increase next year with a boost in artificial intelligence workflows.
Slootman, speaking on a conference call after the results, said AI is spurring demand for the company’s software.
“Generative AI is at the forefront of customer conversations, which in turn drives renewed emphasis on data strategy in preparation of these new technologies,” Slootman said on the call. “We’ve said it many times — there’s no AI strategy without a data strategy. The intelligence we’re all aiming for resides in the data and the quality of that underpinning is critical.”
In the fiscal third-quarter, product revenue increased 34% to $698.5 million. Analysts, on average, estimated $675.3 million. Profit, excluding some items, was 25 cents a share in the period ended Oct. 31, compared with the average projection of 16 cents.
Snowflake had 436 customers that spent more than $1 million on products over the last year, up from 402 the previous quarter. Remaining performance obligations were $3.7 billion, in line with estimates.
Optimistic commentary from management alongside the optimistic outlook “gives us more confidence” that the fiscal fourth quarter “could ultimately represent a bottom in terms of normalized growth,” wrote Evercore analyst Kirk Materne.
(Updates with CEO comments from conference call in the eighth paragraph.)
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