Summary
Snowflake's third quarter of fiscal 2021, ended Oct. 31, 2020, delivered rapid top-line growth but wider losses. Total revenue rose 118.6% year over year to $159.62 million. Gross profit rose 113.5% to $92.94 million. Operating loss widened 88.0% to $169.45 million. Net loss widened 91.8% to $168.89 million. Diluted EPS was -$1.01. The quarter was Snowflake's first as a public company. The company said it was pleased with its performance, citing strong revenue growth and improving unit economics, cash flow, and operating efficiencies. Sales and marketing, research and development, and general and administrative expenses all increased in absolute dollars, and stock-based compensation rose sharply after the September 2020 IPO.
Operational metrics remained strong. Net revenue retention rate was 162% as of Oct. 31, 2020. Total customers reached 3,554, up from 2,392 as of Jan. 31, 2020. Snowflake had 65 customers with trailing 12-month product revenue greater than $1 million. It also counted 165 of the Fortune 500 as customers, and those customers contributed about 28% of revenue for the nine months ended Oct. 31, 2020. Remaining performance obligations were $927.90 million. Deferred revenue, current, was $438.23 million. RPO is not necessarily indicative of future product revenue growth because it does not account for the timing of customers' consumption or their consumption of more than their contracted capacity. Management expects net revenue retention rate to decrease over time as customers that have consumed the platform for an extended period become a larger portion of the customer base.
Margins show a mixed picture. Gross margin was 58.2%, down 1.4 percentage points from the prior-year quarter. Operating margin improved to -106.2%, up 17.3 percentage points. For the nine months, revenue rose 126.8% to $401.58 million, and gross profit rose 154.6% to $241.90 million. The nine-month operating loss widened 25.8% to $343.54 million, and the nine-month net loss widened 28.2% to $340.17 million. Diluted EPS for the nine months was -$3.63. Nine-month gross margin improved to 60.2%, up 6.6 percentage points, and nine-month operating margin improved to -85.5%, up 68.6 percentage points.
Cash flow remains negative but is improving on a year-to-date basis. Operating cash flow was -$19.75 million for the quarter. For the nine months, operating cash flow was -$65.03 million, an improvement of 51.4% from the prior-year period. Capital expenditures were $17.27 million for the quarter and $24.02 million for the nine months, up 65.6% year over year for the nine-month period. On a non-GAAP basis, free cash flow was -$37.9 million for the quarter, and adjusted free cash flow was -$37.1 million. Non-GAAP operating loss was $48.1 million, or negative 30% margin. The company ended the quarter with a strengthened balance sheet after its September 2020 IPO, which raised net proceeds of $3.7 billion.
Management guided fourth-quarter product revenue growth of 97% to 103% and full-year product revenue growth of 113% to 115%. The fourth-quarter outlook includes a non-GAAP operating loss margin of 30%. For the full year, the company guided a non-GAAP product gross margin of 68%, a non-GAAP operating loss margin of 40%, and an adjusted free cash flow margin of negative 18%. The main risks remain the consumption-based model, which gives limited visibility into the timing of revenue recognition. Management noted that COVID-19 has lengthened some sales cycles and delayed professional services. The company also faces competition and risks tied to scaling its sales force and cloud infrastructure. It has committed to spend at least $550 million between September 2020 and December 2025 under one cloud infrastructure agreement and $1.2 billion between August 2020 and July 2025 under another. Those commitments could pressure cash flow if demand slows. The company also said it will continue to invest heavily to grow the business rather than optimize for profitability or cash flow in the near future.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $159.6M | — | — | — | — |
| Gross profit | $92.9M | — | — | — | — |
| Gross margin | 58.2% | — | — | — | — |
| Research & development | $74.1M | — | — | — | — |
| Sales & marketing | $134.7M | — | — | — | — |
| General & administrative | $53.5M | — | — | — | — |
| Total operating expenses | $262.4M | — | — | — | — |
| Operating income (loss) | -$169.5M | — | — | — | — |
| Operating margin | -106.2% | — | — | — | — |
| Net income (loss) | -$168.9M | — | — | — | — |
| Net margin | -105.8% | — | — | — | — |
Risks
Because Snowflake recognizes revenue on consumption rather than ratably, it lacks visibility into the timing of revenue recognition. Total revenue rose 118.6% to $159.6 million for the quarter ended Oct 31, 2020, but customers may consume more slowly than expected, causing revenue fluctuations.
AWS, Azure, and GCP are both key suppliers and competitors, and a substantial majority of business runs on AWS. They could bundle competing products, provide unfavorable pricing, or exclude Snowflake, pressuring gross margin, which was 58.2% in the quarter ended Oct 31, 2020, down 1.4 pp from the prior-year quarter.
Net loss widened to $168.9 million for the quarter ended Oct 31, 2020 from $88.1 million in the prior-year quarter, and operating loss widened to $169.5 million. Snowflake expects costs and expenses to increase and intends to invest heavily rather than optimize for near-term profitability or cash flow.
Sales to large enterprises involve longer sales cycles, more complex customer requirements, and substantial upfront costs. MD&A notes expanded sales force focus on large organizations, and failure to hire, develop, and retain effective sales personnel or achieve productivity could harm revenue growth.
COVID-19 has caused lengthening of sales cycles for some prospective customers and delays in professional services. MD&A notes potential reduced demand, customer losses, and collection difficulties, although results of operations have not been adversely impacted to date and uncertainty remains.
CEO Frank Slootman joined in April 2019 and CFO Michael Scarpelli joined in August 2019, so much of management is new. Competition for cloud data platform engineers, sales professionals, and support personnel is intense, and loss of key employees could harm growth.
On July 24, 2020, Yeti Data filed a lawsuit alleging trademark infringement and seeking permanent injunction, damages, and attorneys' fees. An adverse outcome could require ceasing use of features, making substantial payments, or costly redesign.
Lock-up releases begin on or around December 15, 2020, with additional releases if Class A stock exceeds $159.60, and remaining shares eligible after the second quarterly release following the IPO. Future sales or the perception of sales could depress the Class A stock price and impair capital raising.
IPO proceeds increased the likelihood that Snowflake will explore larger and more complex acquisitions and investments. Integration may divert management, cause unforeseen expenditures, fail to achieve synergies, result in impairment charges, or dilute stockholders.
Sales to federal, state, local, and non-U.S. governments face competitive procurement, budget cycles, termination for convenience, audits, and complex compliance rules. A substantial majority of government sales are through resellers, and non-compliance could lead to penalties, debarment, and reputational harm.
Snowflake historically receives a higher volume of orders in its fourth fiscal quarter due to customer procurement and budgeting cycles, which impacts remaining performance obligations. Seasonality is expected to become more pronounced as it targets large enterprise customers, and RPO was $927.9 million at Oct 31, 2020.
As a newly public company, Snowflake must develop and maintain effective internal control over financial reporting. Failure or material weakness could lead to inaccurate financial reporting, loss of investor confidence, and SEC sanctions.
Class B common stock has ten votes per share and represented approximately 98% of voting power as of Oct 31, 2020. This concentration limits Class A holders' ability to influence corporate matters and may adversely affect the Class A stock price.
In July and August 2020, Snowflake amended cloud infrastructure agreements, committing at least $550.0 million through December 2025 and $1.2 billion through July 2025. Failure to meet minimum purchase commitments requires paying the shortfall, creating fixed obligations if demand slows.
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
Product Revenue
Customers with Trailing 12-Month Product Revenue Greater than $1 Million
Summary, forecast, risks and KPIs are extracted from Snowflake Inc.'s SEC filings for Q3 FY2021 (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.