Snowflake’s ($SNOW) 2025-Q2 corporate earnings analysis
Editor’s Note: a previous version of this article had an incorrect calculation in the model for Free Cash Flow (FCF) and the associated visualization chart. The article has been edited with the correct data.
Key Highlights
- Snowflake increases number of customers by 21% YoY, including a 28% jump in customers with over $1M in Trailing Twelve Month product revenue
- 334.1M diluted shares outstanding (used for EPS calculation)
- 2025-Q2 revenue increase 28.9% YoY to $868.8M (2024-Q2 revenue was $674.0M), HY2025 revenue up 30.8% YoY to $1,697.5M (compared with 1297.6M HY2024)
- Net income (loss) 2025-Q2 ($317.8M) decreases 39.8% YoY, meaning EPS of ($0.95) per diluted share (loss per share)
- Snowflake only provides guidance for Product Revenue, not Total Revenue for future quarters. Not entirely sure just yet for this discrepancy, but it is one that should be studied in the future. Assuming that their product revenue margin stays flat to this quarter, future expectations for 2025-Q3 are: Total Revenue of 890.5M-895.7M; did not supply EPS estimates. FY2025 expectations are: Total Revenue of 3,515.8M, no EPS guidance
Operating Margin Study
From the Income Statement below, Snowflake calculates their Operating Income (Loss) as Gross profit less Sales & marketing expenses, R&D expenses, G&A expenses.
In this latest quarter, despite growing revenues this quarter (and this year so far), we see they are significantly spending more to run the company across the board, with the leading additional spend in R&D costs.
- S&M spend — 16.7% increase in quarter; 18.8% increase YTD
- R&D spend — 39.4% increase QTR; 43.5% increase YTD
- G&A spend — 16.8% increase QTR; 17.7% increase YTD
This contributes to a loss in operating income on the quarter of 24.5%… not good.
Below is the visualization for Operating Margin over the last four years of half year data ($SNOW IPO’d in late 2020, so I’m omitting that year until we get to 5YR data this coming December).
We can see that they are flattening out in terms of margin to date. They are still in an aggresive cycle of reinvesting revenues and profits back into the company to grow their service offering, so I would look for signs that this improves significantly over time before making an investment.
Historical Analysis
Snowflake’s reporting seems to want to complicate the analysis of their KPIs, with the company pushing hard to report Product Revenue as a main metric, almost more so than Total Revenue. I’ll include their statement of this KPI from their latest press release:
“Product revenue is a key metric for us because we recognize revenue based on platform consumption, which is inherently variable at our customers’ discretion, and not based on the amount and duration of contract terms. Product revenue is primarily derived from the consumption of compute, storage, and data transfer resources by customers on our platform. Customers have the flexibility to consume more than their contracted capacity during the contract term and may have the ability to roll over unused capacity to future periods, generally upon the purchase of additional capacity at renewal. Our consumption-based business model distinguishes us from subscription-based software companies that generally recognize revenue ratably over the contract term and may not permit rollover. Because customers have flexibility in the timing of their consumption, which can exceed their contracted capacity or extend beyond the original contract term in many cases, the amount of product revenue recognized in a given period is an important indicator of customer satisfaction and the value derived from our platform. Product revenue excludes our professional services and other revenue.”
I generally don’t care what companies like to push in their rhetoric such as this when analyzing unless it makes 100% clear sense that the reported metrics are absolutely essential to the operations of the business. From this definition, I understand the viewpoint that Snowflake is attempting to justify, however, I think being consistent across analysis is still essential. As when we begin building up studies of industry competitors, it’ll be much easier to compare them if we are using common metrics. For that reason, I am choosing to model the following historical data using Total Revenue figures from the Income Statement.
Takeaway from the data
- It’s clear from the data so far that Snowflake is doing a great job in terms of growing their market share and number of customers, contributing to the linear growth of Revenue we’ve seen. The company is still young, which is why we’re seeing this crunch of income from these revenues as their aggressively trying to grow market share even more to catch up with competition in the space.
- The Debt to Asset ratio is not at a concerning level yet, being around 40%. But, the company contributing grew their liabilities by over 10% YoY, so this is something I want to watch because this can become a long term concern if they can’t achieve their desired profitability metrics.
- Snowflake was doing a fantastic job with growing their free cash flow, and this makes sense since the level of AI spend increased significantly around the time they IPO’d. Now we are seeing it start to level off, as they are expanding their operational expenses & debt repayments. We have to watch in coming quarters to see if this continues growing, or takes a dip.
Final Thoughts
I believe Snowflake is a hard tell. It definitely has potential to be a giant player in the AI and Software space in the future, however, there is so much competition and they are trying desperately to make up for that considering they are a young company.
Investors in the game now are really vying for that story of Snowflake being able to achieve significant market share and their investment pays off big time. And this can very well be the case. This is one of the plays that comes with higher risk, and as such, if it pays off it’ll be a large move.
At this moment in time though, I’m still going to remain at a wait and see when it comes to the Long Term portfolio. In that portfolio, I don’t want to add too many high risk plays. But I will be keeping an eye on it for the trading account.
