(Bloomberg) -- Snowflake Inc. gained 20% in premarket trading after the company gave a better-than-expected sales outlook, suggesting newly launched products are receiving a strong reception from customers.
Product revenue, which makes up the bulk of Snowflake’s business, will be $906 million to $911 million in the period ending in January, the company said Wednesday in a statement. Analysts, on average, predicted $890.7 million, according to data compiled by Bloomberg. Adjusted operating margin will be about 4%, while analysts expected 1.7%.
Snowflake’s software pulls in, organizes and analyzes data from a variety of sources. Under Chief Executive Officer Sridhar Ramaswamy, the company has introduced products that use generative AI and allow people to analyze more types of data. Product cohesion and ease of use is “leading us to win new logo after new logo, expand within our customer base, and displace our competition over and over again,” Ramaswamy said in the statement.
As part of this effort, Snowflake announced it has agreed to acquire Datavolo Inc., a startup that allows easier ingestion of unstructured data, which is unorganized information from other sources that often is used to fuel generative AI.
The deal will make it easier for customers to analyze more information within Snowflake and build AI-based applications on that data, Ramaswamy said in an interview. Earlier this year, Datavolo announced more than $21 million in funding from investors including General Catalyst, Citi Ventures and Rob Bearden, the former CEO of Cloudera Inc. No terms were disclosed for the acquisition.
Large language models made by AI company Anthropic will now be available on Snowflake’s platform, the company said Wednesday in a separate statement. While basic models are fine for many uses, advanced efforts such as building AI agent products are best performed with powerful models from OpenAI or Anthropic, Ramaswamy said.
The shares hit a high of $155.44 in premarket trading on Thursday, after closing at $129.12 in New York. If the gains hold, Snowflake will be set for its biggest rise since August 2022. The stock had plunged 35% this year through the close, with investor sentiment “frigid,” wrote Brent Bracelin, an analyst at Piper Sandler, ahead of the results. That’s due to concerns over slowing consumption on the platform, recent leadership changes, competition and wider economic pressures, he added.
The earnings report seemed to ease those fears. “The demand environment has stabilized and is starting to show signs of improvement,” Kirk Materne, an analyst at Evercore ISI, wrote in a note. Snowflake’s AI products are likely seeing solid early traction, he added.
The company’s expansion strategy is fueled in part by increased pressure from rivals including Databricks Inc. and cloud infrastructure providers such as Microsoft Corp. Snowflake often touts its ease-of-use of as a competitive advantage. “Our competition is a bunch of strung-together stuff where customers have to spend lots and lots on engineers to get everything to work,” Ramaswamy said when asked about Databricks.
Fiscal third-quarter product revenue increased 29% to $900.3 million, compared with the $856.6 million average estimate. Profit, excluding some items, was 20 cents per share, beating the average analyst estimate of 15 cents per share.
Snowflake has worked on improving its margins through a “rigorous process to reevaluate our cost structure,” Chief Financial Officer Mike Scarpelli said during a call with analysts after the results. Ramaswamy added that the company has removed management layers and ended some internal projects.
Snowflake now has 542 customers that spent more than $1 million over a trailing 12-month period, compared with 510 in the previous quarter. Remaining performance obligations — another key benchmark of growth — were $5.7 billion in the period ended July 31, topping analysts’ average estimate of about $5.2 billion.
--With assistance from Subrat Patnaik.
(Updates with premarket trading from first paragraph)
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