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Stock Watch

Snowflake share price set to cool a little

In light of the surge in the Snowflake share price since its IPO launch, there was always the risk that the first earnings report as a publicly-listed company might fall short. As with any IPO, there are always up-front costs that tend to affect headline profits in the first instance.

Snowflake's progress has certainly been impressive in terms of the actual numbers. In the first-half of this fiscal year, the company returned $242m in revenue, leaving it on course to more than double its turnover for this year, to over $540m.

Even allowing for that, and Snowflake's share price move to highs of $340 last month, it does beg the question as to whether there is too much froth in the valuation.

Losses could impact Snowflake share price

Q3 revenues came in at $159.6m, over double the same period last year at $73m, however the company still remains some way short of being profitable, as losses increased to $168.9m.

The outperformance will no doubt please Snowflake's backers, Salesforce and Warren Buffet’s Berkshire Hathaway, who both invested over $250m in the business at the IPO price.

Yesterday’s losses were larger than expected, which wasn’t too much of a surprise. However there was some disappointment over its projections for the upcoming quarter, which are expected to come in between $162m and $167m.

Business looking good, despite stiff competition

The general consensus was for a number towards the upper end of the projection at $166m, and while the number is still within the wider guidance threshold, some investors may well start to look at taking profit in a sector where competition is already fierce.

Snowflake is operating in the same sandbox as the likes of Amazon, Microsoft and Alphabet, and has recently signed deals with Capital One and Goldman Sachs. Business is certainly looking good, in the short- to medium-term, however does it justify an $80bn valuation?

Early indications suggest that we could see further weakness in the Snowflake share price when US markets reopen later today

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