For a chief executive, perhaps nothing is more indicative of Wall Street’s regard for your performance than when your company’s stock drops 20% after the news of your retirement.
But Snowflake Inc.’s
SNOW,
story is more complicated than that. The stock is down nearly 23% in Thursday’s premarket action following not only the software company’s announcement that Frank Slootman has left the CEO post but also the establishment of guidance for fiscal 2025 that trailed the consensus view.
See more: Snowflake’s stock plunges after earnings, with CEO switch a ‘massive surprise’
Those twin concerns could erase $17 billion from Snowflake’s market capitalization Thursday if current premarket losses carry through to the close. Meanwhile, any percentage decline in excess of 16.5% would make for Snowflake’s worst single-day stock drop on record.
“While one can argue that resetting expectations provides a clean start for the company and the new CEO, we worry that the persistent steep deceleration over the past five years will shake investor confidence in growth durability and management’s credibility in estimating the revenue/growth opportunity,” Bernstein analyst Mark Moerdler wrote Thursday.
Even following an expected sharp decline in Thursday’s session, Snowflake’s stock could “remain in the penalty box in the near-term until the management team proves their ability to reliably estimate and communicate growth expectations,” he added.
Moerdler kept the stock at a market-perform rating Thursday, while cutting his price target to $171 from $191.
While Snowflake’s management said that its current guidance is conservative, Wedbush analyst Taz Koujalgi tried to put that to the test, coming out with a “mixed” view.
“[B]ased on the current exit run rate of [fiscal fourth-quarter] product revenues, the guide appears pretty conservative,” he wrote. “However, when we try and analyze where product revenues in [fiscal 2025] could end up based on ending [current remaining performance obligations] it appears the guide is not as conservative, and we might need to see an improvement in customer behavior to get bigger than usual beats.”
He gave the stock a neutral rating with a $210 target price.
Truist’s Joel Fishbein called the outlook “a notable surprise to the downside” while acknowledging that Snowflake likely saw “reason to take all conceivable cautions in their methodology” given the CEO change and a series of guidance cuts executed during fiscal 2024.
Still, he said there were “a number of drivers in the story to make investors constructive at current levels.” The company has new products that could deliver upside to forecasts, and Sridhar Ramaswamy, the new CEO, could bring more of a product focus to the company.
“Given his technical background and AI leadership, we expect Mr. Ramaswamy to be a different style of leader for the company with an emphasis on product and leveraging SNOW’s strong positioning in the data stack to build a company for the AI era,” Fishbein wrote.
Plus, Chief Financial Officer Mike Scarpelli has committed to stay on board for at least another three years.
Fishbein has a buy rating on Snowflake shares, though he lowered his price target to $210 from $250 late Wednesday.
Read: Salesforce’s disappointing guidance overshadows earnings beat, stock slips
Melius Research’s Ben Reitzes agreed that Ramaswamy seemed like a good choice to take over for Slootman, but he flagged that Slootman’s exit comes after he said last summer he planned to stick around.
He continues to rate the stock a hold, citing valuation concerns as Snowflake carries “the risk of stumbles.”
Further, he noted that Snowflake is no longer externally managing its long-term target. “We had thought the $10 billion product revenue forecast for [fiscal 2029] placed an artificial floor on the stock — and now that seems gone.”
