Is Snowflake Stock A Buy Amid Amazon Pact, Buyback Program?

Technical analysis of SNOW stock remains controversial after its IPO. Some say it's a buy now, while others are waiting to see how the company does.

Snowflake is a proxy for the growth of the cloud computing giants, Microsoft and Alphabet (GOOGL). Concerns that the growth of public clouds would slow down if the U.S. economic system falls into recession are one concern for Snowflake stock.

Snowflake (SNOW), a cloud-based data analytics and management tool, sells tools for managing data.

Snowflake’s board of directors approved the repurchase up to 2 billion dollars of common stock in February. The program ends in March 2025.

SNOW has gained 1.5% since 2023, as software growth stocks try to recover. The iShares Extended Tech-Software (IGV) ETF is one software benchmark that has risen nearly 17% since 2023. The software ETF has retreated a little in early April. It dropped more than 35% by 2022.

SNOW stock declined by more than 57% between 2022 and 2022. Snowflake, one of the most expensive software stocks in 2020 and 20, has seen its trading multiple fall significantly. Analysts still question the value of Snowflake stock despite stellar but decelerating revenue growth.

SNOW's stock may benefit from the recent extension of its multi-year partnership with Amazon Web Services. Both companies will be contributing to increased marketing.

Snowflake will spend $2.5 billion on AWS in the next five-year period as part of this deal. Both companies will develop strategic initiatives through industry solutions, deeper product integrations and increased sales collaboration. Snowflake has over 6,000 customers on AWS. AWS is used by 84% of Snowflake's customers to run cloud workloads.

SNOW's stock fell after the company issued revenue guidance for fiscal 2024 that was lower than expected.

Sterling Auty, an analyst at SVB MoffettNathanson, said in a recent report that SNOW stocks are exposed to the banks and financial services sectors.

Snowflake is hiring, Brent Thill, Jefferies analyst in a report published recently noted.

He said that the sales and marketing workforce grew by 45% during fiscal 2023, and now represents 47% total headcount. Updated fiscal 2024 revenue outlook is 40% growth year-over-year. This could indicate that the current fiscal 2024 product growth numbers are conservative, or that the company has overhired in the sales-and-marketing organization in fiscal 2023.

Snowflake is a consumption-based business, not a subscription-based one. Bearish investors are concerned that if the U.S. economy were to slow down, this could affect demand.

Snowflake's goal is to help customers access and distribute their data throughout their business ecosystem. This will accelerate business intelligence and advanced analysis.

Snowflake Stock pulled off the biggest initial public offering by a software firm ever in September 2020. Snowflake's IPO raised $3.4 Billion.

Snowflake held a user and analyst conference in Las Vegas, in June 2022. The company stated that new products in the app development, data protection and other areas would expand its TAM from $90 billion to $248 billion, by 2027.

In a note sent to clients, Jefferies analyst Brent Thill stated that Snowflake's roots were in data warehouses.

The enterprise software maker reiterated at the user conference its fiscal 2029 goal of $10 billion in revenue for SNOW stocks. Snowflake expects free cash flow margins will improve from 15% to 25%.

Software stocks are typically valued as a multiple based on projected revenue growth. Snowflake is not a software-as-a-service, or SaaS, company that aims to build recurring subscription revenue.

The company responded to concerns about its revenue model based on consumption at the User Event. Snowflake's revenue is directly related to the amount of data that its users crunch and store. The usage may slow down during a recession.

Snowflake is also perceived as costly by customers who don't have control over usage. Analysts say that there is less predictability and transparency with the subscription-based SaaS model.

Cloud computing is increasingly being used by companies to help them "digitally transform" their businesses and gain insights from massive amounts of data. Cloud computing giants have their own tools for data management and analytics.

Cloud giants offer Snowflake to their clients. Snowflake is better at certain key tasks. For example, its tools make it easier for companies to compile, view and analyze massive amounts of data.

Snowflake is used by nearly two-fifths (25%) of Fortune 500 companies as they migrate away from the on-premises data warehouse products of Teradata, Oracle and IBM.

Snowflake's stock reached a record high of 429 early in December 2020. SNOW stock fell amid concerns from analysts about its high valuation.

The competition is growing. Salesforce (CRM), a real-time solution for data, introduced Genie recently. This could cause Snowflake to clash at some point.

SNOW's stock is concerned about whether Amazon Web Services and Google cloud will increase competition. In addition, the competition with privately-held Databricks has intensified. Databricks was valued at $28 billion in a recent funding round.

Databricks is expected to announce its own IPO. The company uses artificial intelligence. Hewlett Packard Enterprise's (HPE) GreenLake platform is a rival.

Snowflake bulls point out its experienced management team as an asset

Snowflake appointed Frank Slootman chief executive in May of 2019. Slootman resigned as CEO of ServiceNow at the beginning of 2017. Mike Scarpelli, former ServiceNow (NOW), Chief Financial Officer, joined Snowflake as CFO in 2019.

Snowflake’s platform, unlike legacy on-premise data systems, was designed from the ground up to support cloud computing. The company provides all of its software via the internet.

Snowflake's data warehouse allows customers to share data across online storage systems with their partners. Snowflake allows applications to share easily searchable data.

Snowflake data analytics tools are available on Amazon Web Services since 2015, Microsoft Azure from 2018 and Google Cloud Platform in 2020.

Snowflake and will partner in June 2021. Both companies will work together to offer artificial intelligence tools for companies.

Karl Keirstead, UBS analyst, said that while Snowflake was multi-cloud, 85% of the company's revenues came from data analytics projects deployed on Amazon Web Services. AWS Redshift is Snowflake’s main competitor.

Keirstead continued, "This frenemy relationship is crucial to Snowflake’s success." AWS benefits more from Snowflake's spending on computing and storage infrastructure than it loses in terms of AWS Redshift revenue.

Snowflake focuses on six core market segments: financial services, healthcare and life sciences; retail and consumer packaged products; advertising media and entertainment; technology and government sectors.

Snowflake used a dual class share structure when it went public in 2020. This gave its CEO, and other insiders, super-voting powers. Snowflake, however, eliminated the dual class structure in March of 2021.

SNOW's stock dropped from the IBD Leaderboard in 2021. IBD's Leaderboard is a curated list that highlights stocks with strong technical and fundamental metrics.

Snowflake reported a loss of 64 cents per common share for the quarter ending Jan. 31 compared to a 43 cents loss one year ago. FactSet polled analysts who expected Snowflake would report a loss per share of 66 cents.

The company uses GAAP to report its results. Snowflake's releases do not include adjusted earnings. Analysts for SNOW still projected a loss adjusted of 5 cents a share.

Software maker says revenue grew 53% to $589 Million. Analysts predicted revenue of $575.9 millions.

Snowflake anticipates that product revenues will range between $568 million and $573 million for the current quarter, which ends in April. Analysts had predicted $582.1million.

Snowflake stock was listed on the 16th of September 2020 at 120 per share. Investors were looking for recurring income during the coronavirus crisis, so software growth stocks became popular.

Stocks of SNOW soared as high as 319. They closed at 253.93, 111.6% higher than the IPO price. Analysts questioned Snowflake's value, which led to a pullback in shares.

Over the next two month, Snowflake stock formed a base with a handle and a cup. The new base established an entry level of 301. SNOW stock has blown past the purchase point and reached an all-time peak of 429 in December 2020.

Snowflake currently has a Relative strength rating of 37, out of 99. The Relative strength rating compares a stock’s performance to all other stocks in the past 52 weeks.

According to IBD StockCheckup, SNOW also holds an IBD Composite rating of 34 out a maximum of 99. Composite Ratings of 90 or higher are the best for growth stocks.

This rating is based on the price and volume fluctuations in a stock during the last 13 weeks.

Recently, Snowflake stock dropped off of the IBD Leaderboard. By April 7, the SNOW stock must have a solid base in order to be able to trade.

Reinhardt Krause is on Twitter @URL. Follow him for the latest updates on 5G wireless technology, artificial intelligence and cybersecurity.

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