Accelerating AI strategy pays off! Snowflake's Q1 revenue increased by 33% year-on-year, with Q2 product revenue guidance exceeding expectations

Zhitong Finance learned that Snowflake (SNOW.US) has announced its first-quarter financial performance. Snowflake's second-quarter sales guidance exceeded expectations, indicating that new artificial intelligence products are helping to accelerate growth. Snowflake's first-quarter product revenue increased by 34% year-on-year to $7.896 billion, higher than analysts' expectations of $7.49 billion. First-quarter total revenue was $8.29 billion, a 32.9% year-on-year increase, compared to analysts' expectations of $7.86 billion. Non-GAAP earnings per share were $0.14, below analysts' expectations of $0.19.

In a statement on Wednesday, the company stated that as of July, product revenue, the main source of total revenue, is expected to reach $8.05 billion to $8.1 billion, with analysts' average expectation at $7.875 billion. The company also raised its product sales forecast for the fiscal year from $32.5 billion to $33 billion.

This is the first full quarter for Sridhar Ramaswamy, former Google executive and co-founder of search startup Neeva, as CEO of Snowflake. He needs to reaccelerate growth for this cloud analytics software maker while fending off competition from rivals like Databricks Inc. KeyBanc Capital Markets analyst Eric Heath previously pointed out that the pace of AI-related announcements has accelerated since Ramaswamy's appointment as CEO, which is a positive change, with products like Cortex and Snowpark Container Services expected to become popular soon.

Analyst Kirk Materne from Evercore ISI wrote that despite better-than-expected prospects, this still represents a slowdown in revenue growth, which may not appease investors who are bearish on the stock. Bloomberg analyst Mandeep Singh stated that this guidance reflects uncertainty in consumer spending in the second half of the year One pillar of Ramaswamy's strategy is to invest in generative artificial intelligence products. Snowflake once negotiated the acquisition of generative startup Reka AI for over $1 billion, but the deal ultimately fell through. In April, Snowflake released its own large language model and allowed customers to use third-party AI models on the company's platform to process their data. Ramaswamy stated, "Our AI products are now widely available and have sparked strong interest from customers. They will help our customers deliver effective and efficient AI experiences at unprecedented speed."

Snowflake also announced that it will "acquire certain technology assets from AI-focused startup TruEra and hire key employees." TruEra's last funding round was in 2022. Snowflake CFO Mike Scarpelli stated in a post-earnings conference call that around 35 employees will be joining. Specific terms were not disclosed. As the field of generative AI becomes increasingly popular and hyped, several large tech companies are collaborating with or acquiring startups involved in this technology.

As of the end of this quarter, the company had a total of 7,296 employees, nearly 1,000 more than the same period last year. In contrast, many other tech companies have been downsizing over the past year.

Scarpelli mentioned that the cost of graphics processing units is impacting profitability as the company invests in new AI initiatives. Scarpelli said, "We believe these investments are key to unlocking additional revenue opportunities."

Overall, data is the lifeblood of the internet and software, and the volume of data being generated is accelerating. Therefore, the importance of storing data in scalable and efficient formats continues to rise, especially as its diversity and relevant use cases expand from analyzing simple structured datasets to processing large amounts of unstructured data like images, audio, and video. As a result, the company's large customers continued to grow this quarter.

In this quarter, Snowflake reported 485 enterprise customers paying over $1 million annually, an increase of 24 from the previous quarter, representing a 30% year-over-year growth. Additionally, there are 709 Forbes Global 2000 customers, an 8% year-over-year increase. However, the number of customers with annual spending over $1 million is lower than analysts' expectations, which may indicate that the sales slowdown observed in the previous quarter could persist. Nonetheless, the remaining performance obligation (RPO) for the first quarter was $5 billion, a 46% year-over-year growth, exceeding analyst expectations. The net revenue retention rate (NRR) was 128%, down from 131% in the previous quarter As of the time of publication, Snowflake rose more than 4% in after-hours trading on the US stock market, closing at $163.34 on Wednesday. Due to investor caution regarding executive changes and concerns about slowing sales growth, the company's stock price has fallen 18% this year