Snowflake Outlook Misses With Cloud Spending Under Pressure

Brody Ford, Bloomberg News

The Snowflake Inc. website homepage is displayed on a smartphone in an arranged photograph taken in the Brooklyn borough of New York, U.S., on Wednesday, Sept. 16, 2020. Snowflake Inc. soared in a euphoric stock-market debut that transformed the eight-year-old software company into business valued at about $72 billion. Photographer: Gabby Jones/Bloomberg , Bloomberg

(Bloomberg) -- Snowflake Inc. shares fell the most in almost 10 months after the business software company gave a disappointing sales outlook.

The company said product revenue will grow about 45% to as much as $573 million in the fiscal first quarter, which ends in April. Analysts were expecting $582.1 million on average, according to data compiled by Bloomberg. Product sales make up the majority of Snowflake’s total revenue and are watched closely by investors.

Analysts have been concerned about a potential slowdown in growth at the software maker due to its signature pricing model, which charges customers based on how much they use its products. Consumption-priced cloud offerings from companies like Microsoft Corp. and Amazon.com Inc. have seen deceleration in recent quarters, as corporations scrutinize their cloud spending.

The shares tumbled 14%, the most since May 26, to $132.80 as trading got underway in New York.

Snowflake also provided an outlook for the full fiscal year that was underwhelming. The company sees product revenue growing about 40% to $2.7 billion, less than analysts predicted. Operating income margin will be about 6%, the company said.

While the fiscal 2024 revenue guidance was lower than the previous outlook, “it still makes it one of the fastest growing software businesses,” said Tyler Radke, an analyst at Citigroup Global Markets.

In the fiscal fourth quarter, product revenue increased 54% to $555.3 million. Analysts, on average, estimated $540.3 million.