Summary
Snowflake's second quarter of fiscal 2023 showed revenue of $497.2 million, up 82.7% from $272.2 million in the same quarter a year earlier. Gross profit rose 95.1% to $324.0 million, and total gross margin climbed to 65.2% from 61.0%. The consumption model keeps producing fast top-line growth, and the incremental margin is holding up as the platform scales.
The GAAP bottom line is still deeply negative. Operating loss widened to $207.7 million from $200.1 million a year earlier, and net loss widened to $222.8 million from $189.7 million. Diluted loss per share was $0.70, compared with $0.64 in the prior-year quarter. Stock-based compensation is the main driver of the gap between GAAP and adjusted results. On a non-GAAP basis the company reported operating income of $17.5 million, a 4% margin, and non-GAAP product gross margin above 75%.
Cash generation was the bright spot. Operating cash flow was $64.4 million in the quarter, compared with a use of $6.1 million a year earlier. Free cash flow, which subtracts purchases of property and equipment and capitalized software costs, was $53.8 million, an 11% margin, and adjusted free cash flow was $58.6 million, a 12% margin. For the six months ended July 31, 2022, revenue rose 83.5% to $919.6 million and gross profit rose 101.1% to $598.5 million. The year-to-date operating loss narrowed to $396.5 million from $405.7 million, the net loss narrowed to $388.6 million from $392.9 million, and diluted loss per share improved to $1.23 from $1.33. Six-month operating cash flow was $249.0 million, up from $15.7 million.
Costs are still scaling fast. Sales and marketing expense was $274.6 million, or 55% of revenue, up 50% year over year. Research and development was $183.7 million, or 37% of revenue, up 56%. General and administrative was $73.4 million, or 15% of revenue, up 12%.
The demand indicators are strong but not uniformly so. Remaining performance obligations were $2.7 billion, up 80% from $1.5 billion a year earlier. Current deferred revenue was $1.14 billion, up 63.1%. Net revenue retention rate was 171%, down from 176% at January 31, 2022, and management expects that metric to decline over the long term as long-standing customers become a larger share of the base. Total customers reached 6,808, up from 5,965 at the end of the prior fiscal year. Customers with trailing 12-month product revenue above $1 million rose to 246 from 116 a year earlier. The company counted 510 of the Forbes Global 2000 as customers; those accounts contributed about 41% of revenue for the six months ended July 31, 2022. About 57% of RPO is expected to be recognized as revenue in the twelve months ending July 31, 2023, and the weighted-average remaining life of capacity contracts was 1.9 years.
Guidance points to a step down in growth. For the third quarter of fiscal 2023, the company guided product revenue to $500 million to $505 million, growth of 60% to 62%, with a 2% non-GAAP operating margin. For the full fiscal year 2023, product revenue is guided to $1,905 million to $1,915 million, growth of 67% to 68%, with a 75% product gross margin, a 2% non-GAAP operating margin, and a 17% adjusted free cash flow margin.
Risks are real. Revenue depends on customer consumption, which is variable and at the customer's discretion, so results can swing between periods. Product improvements that make the platform more efficient could reduce consumption for the same workload. Competition, discounting, and weaker general economic conditions could pressure spending. In August 2022 the company agreed to acquire Applica for about $175 million in cash, after the March 2022 Streamlit deal valued at $650.8 million. Other income for the quarter was hurt by $26.6 million of impairments on non-marketable equity securities, and the armed conflict in Ukraine and COVID-19 remain named uncertainties.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $422.4M | — | — | $272.2M | +55.2% |
| Gross profit | $274.4M | — | — | $166.1M | +65.2% |
| Gross margin | 65.0% | — | — | 61.0% | +4.0 pp |
| Research & development | $150.8M | — | — | $118.1M | +27.7% |
| Sales & marketing | $243.9M | — | — | $182.9M | +33.4% |
| General & administrative | $68.5M | — | — | $65.2M | +5.0% |
| Total operating expenses | $463.2M | — | — | $366.2M | +26.5% |
| Operating income (loss) | -$188.8M | — | — | -$200.1M | +5.7% |
| Operating margin | -44.7% | — | — | -73.5% | +28.8 pp |
| Net income (loss) | -$165.8M | — | — | -$189.7M | +12.6% |
| Net margin | -39.3% | — | — | -69.7% | +30.5 pp |
| Diluted EPS | -$0.53 | — | — | -$0.64 | +$0.11 |
Risks
AWS, Azure, and GCP are both critical infrastructure providers and primary competitors, and a substantial majority of the business runs on AWS. This creates risk of unfavorable pricing, product bundling, or exclusionary behavior that could reduce consumption growth or pressure gross margins.
Revenue is recognized on consumption rather than ratably, and customers control the timing of resource use, so the company lacks subscription-like visibility and may miss forecasts if consumption is slower than expected. The MD&A also notes that efficiency improvements like storage compression can reduce resource consumption for the same workloads.
The platform operates only on AWS, Azure, and GCP, with a substantial majority on AWS, and the company has minimum commitments that could require payments if unmet. Service-level commitments depend on public cloud availability, and termination or material change in these relationships could disrupt platform delivery.
Unfavorable global economic conditions, inflation, interest rate fluctuations, the Russia-Ukraine conflict, and reduced cloud spending could decrease customer budgets and platform consumption; the company also warns competitors may lower prices in challenging markets.
Rapid historical revenue growth may not be indicative of future performance, and the company expects its revenue growth rate to decline in future periods. Limited operating history makes forecasting revenue, RPO, and the portion of RPO recognized as revenue difficult; current quarter revenue was up 82.7% versus prior-year quarter, but the filing cautions against relying on prior growth.
Growth depends on large enterprise sales, which bring longer sales cycles, complex requirements, substantial upfront costs, and less predictability. Failure to develop and expand sales and marketing capabilities could limit new customer acquisition and broader platform adoption.
Competition for engineers, sales professionals, and support personnel is intense, and the 2021 'great resignation' has made hiring and retention more difficult. Stock price declines and volatility may reduce the perceived value of equity awards, requiring additional equity or cash compensation that could hurt results and dilute stockholders.
Strategic investments in non-marketable and marketable equity securities are subject to partial or total loss. Other income (expense), net decreased $31.7 million for the quarter and $39.7 million for the six months ended July 31, 2022, compared to prior-year periods, primarily due to $26.6 million impairments on non-marketable equity securities.
The Streamlit acquisition closed March 31, 2022 for $650.8 million in cash and stock, and the company agreed in August 2022 to acquire Applica for approximately $175 million in cash. These larger and more complex transactions pose integration, retention, dilution, and potential impairment risks.
Increasing sales to federal, state, local, and foreign governments and heavily regulated industries bring procurement, certification, audit, bid protest, and termination risks. Government contracts can be terminated for convenience or default, and noncompliance may lead to penalties, debarment, or reputational harm.
The company historically receives a higher volume of orders in the fourth fiscal quarter, sees higher free cash flow in the first and fourth fiscal quarters, and records its highest sequential RPO growth in the fourth quarter. This seasonality may become more pronounced as the company targets large enterprise customers.
Professional services and other gross margin remained negative at 34% for the quarter and 33% for the six months ended July 31, 2022, though improved from the prior-year periods. If the company cannot manage growth and improve profit margin from professional services, operating results could be harmed.
SaaS KPIs
All quarters →Net Revenue Retention Rate
Total Customers
Remaining Performance Obligations
Non-GAAP Operating Margin
Adjusted Free Cash Flow Margin
Free Cash Flow Margin
Adjusted Free Cash Flow
Product Revenue
Customers with Trailing 12-Month Product Revenue Greater than $1 Million
Forbes Global 2000 Customers
Free Cash Flow
Non-GAAP Product Gross Margin
Customers with Trailing 12-Month Product Revenue Greater than $5 Million
Summary, forecast, risks and KPIs are extracted from Snowflake Inc.'s SEC filings for Q2 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.