Skip to content
    SNOW
    Earnings call· Jan 2025(Q4 FY25)

    Snowflake Inc. SNOW

    Feb 26, 2025 Source

    Executive summary

    Snowflake Q4 FY25 — Strong Product Revenue Growth and Expanding Margins

    Snowflake delivered robust Q4 FY25 results, driven by strong product revenue growth and expanding non-GAAP operating margins, demonstrating increased operational rigor. The company is aggressively investing in product innovation, particularly in AI and data engineering, with new features expected to accelerate growth in the second half of FY26. Management expressed confidence in the core business and the strategic shift towards an end-to-end data platform, while navigating timing shifts in large customer commitments.

    Highlights

    5

    • Q4 product revenue was $943 million, up 28% year-over-year.

    • Remaining performance obligations (RPO) totaled $6.9 billion, growing 33% year-over-year.

    • Net revenue retention (NRR) remained very healthy at 126%.

    • Q4 non-GAAP operating margin increased to 9%, outperforming expectations.

    • FY25 non-GAAP adjusted free cash flow margin was 26%, with Q4 at 43%.

    Concerns

    2

    • Q1 FY26 product revenue guidance of $955 million to $960 million represents 21% to 22% YoY growth, impacted by a difficult year-over-year comparison due to leap year.

    • Several large customers exhausted capacity before contract end, opting for on-demand purchasing rather than early renewal, potentially impacting near-term RPO growth timing.

    Guidance & targets

    9
    CategoryTargetConfidence
    Q1 FY26 Product Revenue
    $955M-$960M
    high materiality
    High
    Q1 FY26 Product Revenue Growth
    21%-22% year-over-year growth
    high materiality
    High
    Q1 FY26 Non-GAAP Operating Margin
    5%
    medium materiality
    High
    FY26 Product Revenue
    $4.28B
    high materiality
    High
    FY26 Product Revenue Growth
    24% year-over-year growth
    high materiality
    High
    FY26 Non-GAAP Product Gross Margin
    approximately 75%
    medium materiality
    High
    FY26 Non-GAAP Operating Margin
    8%
    high materiality
    High
    FY26 Non-GAAP Adjusted Free Cash Flow Margin
    25%
    high materiality
    High
    FY26 Stock-Based Compensation as % of Revenue
    approximately 37%
    medium materiality
    High

    Operational metrics

    14
    Product Revenue
    $943Mup 28% year-over-year
    Q4 FY25

    Strong fourth quarter results.

    Non-GAAP Operating Margin
    9%
    Q4 FY25

    Outperformed expectations due to efficiency efforts.

    Non-GAAP Adjusted Free Cash Flow Margin
    43%
    Q4 FY25

    Strong margin in the fourth quarter.

    Product Revenue
    $3.5Bgrew 30% year-over-year
    FY25

    Full fiscal year 2025 product revenue.

    Snowpark Contribution to Product Revenue
    3%
    FY25

    Snowpark is becoming an important growth driver.

    Non-GAAP Product Gross Margin
    76%
    FY25

    Landed in line with expectations.

    Non-GAAP Operating Margin
    6%
    FY25

    Full fiscal year 2025 operating margin.

    Non-GAAP Adjusted Free Cash Flow Margin
    26%
    FY25

    Landed in line with expectations for the full fiscal year.

    Share Repurchases
    $1.9B
    FY25

    Amount used to repurchase shares in FY25. No repurchases were made in Q4.

    Remaining Share Repurchase Authorization
    $2B
    as of Q4 FY25

    Remaining authorization for share repurchases.

    Cash and investments balance
    $5.3B
    as of Q4 FY25

    Cash, cash equivalents, short-term and long-term investments at year-end.

    Customers using AI and ML technology
    over 4,000
    weekly basis

    Number of customers actively using AI and ML technology on a weekly basis.

    Product Capabilities Launched
    over 400over double the amount launched the previous year
    last year

    Reflects increased innovation velocity.

    Storage as % of Revenue
    roughly 11%
    Q4 FY25

    Storage remains a consistent component of revenue despite Iceberg adoption.

    Industry KPIs

    2
    MetricValueDetails
    Rpo current rpo$6.9BUSD
    Net revenue dollar retention126%%

    Orderbook & backlog

    1
    Remaining Performance Obligations (RPO)$6.9BQ4 FY25

    33% year-over-year growth

    Several large customers exhausted capacity before contract end, purchasing on-demand rather than early renewal. Management expects these customers to sign new contracts within 1-6 months.

    Product announcements

    4
    ProductTypeDetails
    SnowConvertupdate
    Cortex AIlaunch
    Cortex Agentslaunch
    Snowflake Connectorsexpansion

    Deals & partnerships

    2
    MicrosoftExpanded partnership to bring OpenAI's models into Cortex and make Cortex Agents available in Microsoft 365 CoPilot and Microsoft Teams.

    This partnership makes Snowflake the only data platform to seamlessly host both Anthropic and OpenAI models, enabling customers to build data agents securely. It also brings millions of users seamless access to information and accelerated productivity within the Microsoft platform.

    DatavoloAcquisition of Datavolo technology to provide seamless connectivity and data integration.

    Leveraging Datavolo technology for new Snowflake Connectors in private preview, supporting platforms like SharePoint, Google Drive, Workday, and Slack.

    Risks & headwinds

    3
    Difficult year-over-year comparison for Q1 FY26 revenue growthQ1 FY26

    Q1 FY26 product revenue growth of 21%-22% YoY, compared to 28% in Q4 FY25.

    Mitigation: Management expects new product features to contribute to a step-up in year-over-year growth rates in the second half of FY26.

    Timing of large customer RPO renewalsnear-term (1-6 months)

    Several large customers exhausted capacity before contract end, opting for on-demand purchasing.

    Mitigation: Management expects these customers to sign new commitment contracts within 1-6 months, viewing early consumption as a positive indicator.

    Headwinds associated with performance improvementsFY26

    Included in FY26 product revenue forecast.

    Mitigation: Product improvements are an ongoing part of the business and are factored into guidance.

    What to watch in Q1 FY26

    4

    Large customer RPO renewals

    next quarter to 6 months
    CurrentSeveral large customers exhausted capacity and are purchasing on-demand.
    TargetNew commitment contracts signed by these customers.

    Why it matters

    The timing of📎 these renewals impacts RPO growth and indicates continued commitment from key customers.

    We just had a few big customers that that happened to in this quarter, and I fully expect, sometime over the next month to 6 months, those people will sign new contracts.

    Q&A highlights

    9

    How common is it for large customers to exhaust commitments and go on-demand, and do you expect them to sign new commitment contracts soon?

    It's a common occurrence for large customers to exhaust capacity early. They have options to renew early for economics or continue on-demand. This quarter saw a few big customers do this, and management expects them to sign new contracts within 1-6 months. Early exhaustion indicates higher consumption than predicted, which is positive.

    “This has always happened. We just had a few big customers that that happened to in this quarter, and I fully expect, sometime over the next month to 6 months, those people will sign new contracts.”

    asked by Sanjit Singh · answered by Michael Scarpelli

    2 min read6 chapters

    Detailed Narrative

    01

    Product Innovation and AI Strategy

    Snowflake launched over 400 product capabilities in the past year, double the previous year, with a focus on data engineering and AI. Key innovations include Cortex AI, Cortex Search, Cortex Analyst, and Cortex Agents, supporting models from Anthropic, Meta, DeepSeek, and OpenAI. The company is positioning itself as the 'most consequential data and AI company' by providing an end-to-end data platform, with over 4,000 customers now using its AI/ML technology weekly.

    02

    Customer Adoption and Value Proposition

    Customers are experiencing significant cost savings, with many saving over 50% by migrating to Snowflake. The SnowConvert tool is now free to accelerate migrations from legacy systems. Strong adoption of data sharing capabilities is observed, with companies like Stripe, NTT, and Braze having over 160 active connections. Snowflake's platform is enabling customers like Fiserv, Blue Yonder, AstraZeneca, and State Street to derive insights, build AI models, and create new revenue streams.

    03

    Operational Rigor and Efficiency

    The company has incorporated operational rigor, leading to greater efficiency and margin gains. Efforts include centralizing teams, targeted early career hiring, removing redundant management layers, and continuous performance management. Internal use of AI is driving efficiency in sales and customer consumption trend analysis. Headcount growth for the next year is focused on engineering and sales, directly impacting revenue.

    04

    Consumption Patterns and RPO Dynamics

    The core business remains strong with stable consumption patterns. Remaining Performance Obligations (RPO) grew 33% year-over-year to $6.9 billion. Several large customers exhausted their contracted capacity before their contract end date in Q4, opting to purchase on-demand rather than early renewal. Management views this as a positive indicator of consumption but notes it can affect the timing of📎 RPO renewals.

    05

    Strategic Partnerships and Ecosystem

    Snowflake is deepening partnerships, notably with Microsoft, to integrate OpenAI models into Cortex and make Cortex Agents available in Microsoft 365 CoPilot and Teams. This expands access to world-class AI models within Snowflake's secure perimeter. The company also continues to work with partners like Salesforce and ServiceNow, emphasizing customer choice and bidirectional data integration.

    06

    Iceberg and Open Data Formats

    The adoption of open data formats like Apache Iceberg is seen as a significant opportunity. While some data might move from Snowflake to Iceberg, the company views Iceberg as a tailwind, enabling Snowflake to access and manage data where it resides, expanding its addressable market and driving new workloads. This shift is moving from theoretical to actual consumption and revenue.

    AI-generated summary of the company’s earnings call. Not investment advice.