(Bloomberg) — Snowflake Inc. gave a better-than-expected current-quarter sales outlook and suggested that new artificial intelligence-driven products could help fuel growth.
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Product sales, which make up the bulk of Snowflake's business, are expected to reach $805 million to $810 million for the period through July, the company said in a statement on Wednesday. Analysts on average were expecting $787.5 million, according to data compiled by Bloomberg. The company also raised its full-year product sales forecast to $3.3 billion from $3.25 billion.
This marks Sridhar Ramaswamy, a former Google executive and co-founder of search startup Neeva,'s first quarter as Snowflake's chief executive officer, as he tries to reaccelerate growth at the cloud-based analytics software maker while fending off competition from rivals such as Databricks Inc.
The outlook was stronger than expected but still comes at a time when sales growth is slowing, which won't satisfy investors who are bearish on the stock, said Kirk Mattern, an analyst at Evercore ISI.Mandeep Singh, an analyst at Bloomberg Intelligence, said the outlook reflects uncertainty about customer spending in the second half of the year.
Shares rose about 4 percent in extended trading after closing at $163.34 in New York. The stock has fallen 18 percent this year as investors were wary of management turnover and worried about slowing sales growth.
Read more: Databricks CEO says executive changes at Snowflake driven by rivalry
One of the pillars of Ramaswamy's strategy is investing in generative AI-oriented products. Snowflake was in talks to acquire generative AI startup Reka AI for more than $1 billion, but the talks fell apart after no deal was reached. Snowflake released its own large-scale language model in April and allows customers to use third-party AI models on their own data within the company's platform.
“Our AI products, now generally available, are generating strong customer interest,” Ramaswamy said in a statement. “These will help our customers deliver effective and efficient AI-powered experiences faster than ever before.”
The company's annual meeting in June “should provide a deeper understanding of new CEO Ramaswamy's long-term vision,” Citigroup analyst Tyler Radke wrote ahead of the earnings release.
Snowflake also announced that it would “acquire certain technology assets and hire key employees” from TruEra, an AI-oriented startup that last raised $25 million in 2022. Approximately 35 employees will join, Snowflake Chief Financial Officer Mike Scarpelli said in a conference call after the company's results were announced. Terms were not disclosed. As the field of generative AI grows in popularity and hype, several major technology companies are rushing to partner with or acquire startups working on the technology.
First-quarter product revenue rose 34% to $789.6 million, compared with analyst estimates of $749 million. Earnings, excluding certain items, were 14 cents per share, compared with analysts' expectations of 19 cents.
Scarpelli said profitability is being impacted by the cost of graphics processing equipment as the company invests in new AI initiatives. “We see these investments as key to creating additional revenue opportunities.”
Snowflake now has 485 customers who have spent more than $1 million over the trailing 12 months, up from 461 in the previous quarter. Remaining performance obligations, another key measure of growth, were $5 billion for the period ended April 30, beating analysts' average estimate.
The company had 7,296 employees at the end of the quarter, an increase of approximately 1,000 from the same period last year. Many other tech companies have also cut jobs over the past year.
(Updates with CFO comment after 9th paragraph.)
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