Snowflake Shares Fall After Outlook for Margin and Sales Growth

'The harder part of the equation may be justifying [Snowflake's] valuation based on' the targets the company has set, Morgan Stanley says.
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Snowflake  (SNOW) - Get Report shares fell Friday as analysts reacted to the data-analytics-software company’s long-term forecast of 10% operating margin and 30% product-sales growth.

The Bozeman, Mont., company's stock recently traded at $235.25, down 5.5%. It has slumped 34% in the past six months amid concern about valuation.

Morgan Stanley has an equal-weight rating with a $270 price target. 

The revenue forecast “represents a scaling function well ahead of prior generations of growth software” and may be an underestimate, the investment firm said, according to Bloomberg.

“The harder part of the equation may be justifying the valuation based on these targets.”

Citi has a neutral rating and a $270 price target as well. 

Snowflake’s estimates showed strong conviction about continuing revenue growth, but the margin forecast was less robust, Citi analysts said, according to Bloomberg.

The margin prediction “could be a low bar," they said. But with "the lack of guidance raises seen from the company thus far,” investors "may struggle to get much confidence that numbers are truly conservative." 

Snowflake stands at fair value, as profit gains are “seemingly still far out,” Citi said.

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In May, TheStreet.com Founder Jim Cramer cited Snowflake as a story of “revolution.”

Also last month, the company reported stronger-than-expected first-quarter results and forecast slowing product-sales growth.

Analysts affirmed their ratings on Snowflake but were concerned about the stock's valuation.

The company reported a first-quarter adjusted net loss of 12 cents a share on revenue of $228.9 million. 

Analysts surveyed by FactSet had forecast a loss of 15 cents a share on revenue of $212.6 million.