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On Monday, Citi reaffirmed its confidence in Snowflake Inc . (NYSE: NYSE:SNOW) shares by maintaining a Buy rating but adjusted the price target to $183 from the previous $200. The adjustment follows an analysis of the company's upcoming financial results and market conditions. The firm anticipates Snowflake to report strong third-quarter results, with a product revenue beat of 2-3% and a potential increase to the fourth-quarter guidance.
The firm's expectation of a better-than-anticipated performance in the third quarter is based on commentary regarding the stabilization of hyperscaler businesses and a reduction in Iceberg storage challenges. This optimistic outlook is somewhat balanced by mixed intra-quarter checks, which highlighted both positive and negative trends.
On the positive side, there has been an increased uptake of Snowflake's GenAI products, such as Cortex, and more significant customer engagements. However, these positives are tempered by heightened competition and declining win-rates.
Despite the mixed signals, investor sentiment toward Snowflake has been cautious, as reflected in the company's share performance since the last quarter. Citi sees the current situation as an opportunity, noting the stock's valuation at approximately 10 times enterprise value to sales and a free cash flow multiple that is in line with Microsoft (NASDAQ:MSFT)'s.
The firm believes this presents a good entry point for investors ahead of anticipated growth stabilization and the introduction of new GenAI products under the leadership of CEO Ramaswamy.
The reduced target price to $183 is attributed to slightly lower forecasts for fiscal year 2026. Citi's analysis suggests that while the near-term catalyst path for Snowflake is mixed, the overall outlook remains positive, especially with the upcoming product cycle and the company's strategic positioning.
In other recent news, Snowflake Inc. reported a significant 30% year-over-year increase in product revenue, reaching $829 million for the second quarter of fiscal year 2025, and subsequently raised its full-year product revenue outlook. The company also completed a substantial $2.3 billion convertible debt offering.
On the analyst front, Piper Sandler maintained its Overweight rating on Snowflake shares with a consistent price target of $165, despite concerns over potential top-line pressures due to platform performance improvements. KeyBanc Capital Markets adjusted its outlook, reducing the price target to $150 but retaining an Overweight rating.
In contrast, Monness Crespi Hardt upgraded Snowflake from Neutral to Buy, setting a new price target of $140. Evercore ISI and Goldman Sachs also maintained positive stances on Snowflake, with price targets of $170 and $220 respectively.
In terms of product innovation, Snowflake has announced several enhancements to its data platform and new AI features, underscoring its commitment to improved execution and quicker product innovation. These are all recent developments for Snowflake.
InvestingPro Insights
InvestingPro data and tips offer additional context to Citi's analysis of Snowflake. Despite the optimistic outlook from Citi, InvestingPro Tips reveal that Snowflake is "Not profitable over the last twelve months" and is "Trading at a high revenue valuation multiple." This aligns with the reported P/E Ratio of -41.03, indicating current challenges in profitability.
However, there are positive indicators as well. Snowflake "Holds more cash than debt on its balance sheet," which could provide financial flexibility as it navigates its growth phase and invests in new GenAI products. The company's revenue growth remains strong at 31.21% over the last twelve months, supporting Citi's expectation of continued robust performance.
Interestingly, while Citi adjusted its price target to $183, InvestingPro data shows a Fair Value (Analyst Targets) of $169 USD, suggesting a more conservative outlook among analysts overall.
For investors seeking a more comprehensive analysis, InvestingPro offers 6 additional tips for Snowflake, providing a deeper understanding of the company's financial health and market position.
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