Will the Snowflake share price keep feeling strong ahead of Q3 earnings?

Snowflake [SNOW] is set to report a year-on-year rise of 78.6% in earnings and 90.5% revenues when it releases its third quarter numbers on 1 December.

The cloud-based data warehousing firm is tipped by analysts at Zacks to reveal earnings of –$0.06 per share and revenues of $304m.

Cashing in on the cloud transition

Its figures will have been boosted by more companies seeking to transition from their current cloud and on-premises data centres to more secure options as hybrid working takes off. Companies are also looking to get a better handle on their data management and analytics processes, services which Snowflake provides.

Analysts at Zacks state that there will have been strong adoption of Snowflake’s products from media and telecom, technology, financial services and healthcare customers.

It has also been a good quarter for new partnerships, such as Snowflake’s deal with robotic automation company UiPath [PATH]. In October, UiPath announced it was integrating its Insights platform, which gathers data on a firm’s automation processes, with Snowflake’s data platform. The aim is to make customer pathways to the cloud easier.

In September, it struck a partnership with financial group Citi [C], to make data flows across financial services transactions more efficient.

Snowflake’s winning streak

Snowflake already produced sterling second quarter results in August, with revenues up 104% to $272.2m. It now has 4,990 total customers and is pulling in $1m or more trailing 12-month product revenue from 116 of them.

Such strong performance however could mean a revenue growth slowdown is around the corner, particularly given the 110% year-on-year revenue hike Snowflake recorded in the first quarter.

The Snowflake share price has had a volatile 12 months, rising 16.97% overall to sit at $362.60 at the close on 26 November. However, during that time, it hit an intra-day high of $429 in December 2020 and a low of $188 in mid-May.

The main drag on its share price has largely been down to fears about revenue growth as well as rising inflation and interest rates. The latter are likely to impact high-growth stocks as investors switch to value stocks instead.

Its rivals have fared better, however. Oracle [ORCL] has seen its share price rise 60.85% over the last 12 months, while Teradata [TDC] is up 96.4%.

This strong performance across the board gives a clear indication of the health of the data cloud and analytics sector.

The global cloud computing market size is expected to grow from $445.3bn in 2021 to $947.3bn by 2026, at a compound annual growth rate (CAGR) of 16.3%, according to a recent MarketsandMarkets research report.

It will be driven, the report states, by the need for businesses “to mitigate risks, achieve scalability and flexibility to move and store data, reduce storage and infrastructure complexities, and increase business efficiency leads to the growth of the cloud computing market”.

Snowflake’s share price performance

Analysts remain confident about the direction Snowflake’s stock is travelling in. According to Market Screener, they have a consensus rating of ‘outperform’ and an average target price of $359.31.

Credit Suisse analyst Phil Winslow sees Snowflake as a true pioneer in cloud data analytics. The Fly reported that Winslow told investors in his research note that, “Snowflake is helping drive new customer acquisition, robust customer expansion and attractive unit economics that can be sustained longer than the market appreciates.”

Not everyone is as excited by Snowflake, however. Analysts at Rosenblatt recently downgrading it from a ‘buy’ to a ‘neutral’ rating based on its valuation.

There are challenges ahead for Snowflake, with any potential upcoming economic downturn likely to squeeze enterprise budgets, while competition from the likes of Amazon and worries over higher inflation and interest rates are also causes for concern.

“Snowflake is helping drive new customer acquisition, robust customer expansion and attractive unit economics that can be sustained longer than the market appreciates” - Credit Suisse analyst Phil Winslow

Snowflake’s share price triggers

When it releases results, analysts will be keen to understand how demand is shaping up amongst enterprises, particular SMEs, as the economy emerges from the pandemic. New products, services and partnerships will also be in focus.

The main drag on the share price could be the expected deceleration in revenue growth from the second and first quarter’s triple-digit percentage increases. Forecasts for the fourth quarter and any indication of figures for 2022 will be studied closely.

It is in a prime growth market, but it remains to be seen if Snowflake’s share price will continue to flutter upwards or start to drift in the months ahead.