Projecting revenue is difficult, so we prefer to provide conservative guidance

Snowflake CEO Frank Slootman told CNBC’s Jim Cramer on Wednesday that the company prefers to provide conservative guidance, saying the way it recognizes revenue creates significant uncertainty when a prediction is combined.

Slootman’s comments in an interview with “Mad Money” came after the data-analytics firm reported fourth-quarter results and fiscal 2022. Its stock was crushed in expanding trading, falling 30%. at one point before somewhat dropped by about 22%.

Investors are processing the company’s slowest revenue growth since at least 2019, as well as its guidance for fiscal 2023. Snowflake said it expects product revenue to increase between 65% to 67% in the financial year, right around 66% growth analysts expect, according to FactSet. That represents a huge slowdown from previous years.

“We took a data-driven approach, which you would expect from a data management company. We don’t put wet fingers in the air and go, ‘Well, we think it’s going to be like this,'” Slootman said. “That’s not how we do things, so we’d rather come from a conservative posture and be able to walk things.”

In fiscal 2022, Snowflake’s product revenue – which makes up the majority of its total sales – rose nearly 106%, according to its earnings presentation on Wednesday.

Slootman noted that Snowflake exceeded the fiscal 2022 product revenue forecast provided by the company on March 3, 2021. In that quarterly report, Snowflake projected product revenue growth of 82%. on a year-to-year basis.

Snowflake books its revenue using a “consumption model,” Slootman said, rather than a typical subscription model common in the software industry. It may take time for investors to understand how this will affect its results and ability to predict many quarters into the future, Slootman said.

“We report revenue on what people actually consume in the quarter. We have tons and tons of customers that we don’t have a history of that somehow we have to project exactly what they’re going to do and how they will grow, ”he said.

Snowflake’s cloud-based software allows customers to search and analyze large amounts of data, with the ability to increase capacity as they need. Snowflake had 5,944 total customers at the end of its fiscal 2022, up 44% compared to last year.

“In a consumption model, it’s not the same as a [software-as-a-service] model where things are under contract, and it has a different strange rhythm. Over time, people will get it. They grow with it, get used to it, I hope, ”said Slootman, a veteran in the tech industry who previously headed ServiceNow.

He helped publicize Snowflake in September 2020, which was then the largest software IPO ever.

Snowflake shares have dropped approximately 22% year to date, excluding the move after Wednesday hours. The stock struggles came as Wall Street shifted its focus to more defensive market segments and away from unprofitable, growth -focused companies like Snowflake.

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