For a CEO, perhaps nothing indicates Wall Street's respect for your performance more than when your company's stock drops 20% on the news of your retirement.
But Snowflake Company SNOW,
The story is more complicated than that. The stock fell nearly 23% in premarket action on Thursday, not only after the software company announced that Frank Slootman had left the CEO role but also set guidance for fiscal 2025 that lagged behind the consensus view.
See more: Snowflake shares fall after earnings, with CEO switch a 'huge surprise'
These dual concerns could wipe $17 billion off Snowflake's market cap on Thursday if its current pre-market losses continue to the end. Meanwhile, any percentage decline of more than 16.5% would result in the worst single-day drop in Snowflake stock on record.
“While one could argue that a reset of expectations provides a clean start for the company and the new CEO, we are concerned that the ongoing sharp slowdown over the past five years will shake investors' confidence in the durability of growth and management's credibility in estimating revenue/growth opportunities,” the analyst wrote. At Bernstein's Mark Moerdler on Thursday.
He added that even after the sharp drop expected in Thursday's session, Snowflake stock “could remain in the penalty box in the near term until the management team demonstrates its ability to reliably estimate and communicate growth forecasts.”
Moerdler kept the stock at a market perform rating on Thursday, while lowering his price target to $171 from $191.
While Snowflake management said its current guidance is conservative, Wedbush analyst Taz Koujalgi tried to test that, and came up with a “mixed” view.
“[B]Assed on the exit current operating rate [fiscal fourth-quarter] “Product revenues, the evidence looks very conservative,” he wrote. “However, when we try and analyze where the product revenue is [fiscal 2025] It can end on a final basis [current remaining performance obligations] It appears that the evidence is not conservative, and we may need to see an improvement in customer behavior to achieve greater than usual results.
He gave the stock a Neutral rating with a price target of $210.
Truist's Joel Fishbein called the outlook “a notable surprise to the downside” while acknowledging that Snowflake will likely see “reason to take every conceivable caveat in its methodology” given the CEO change and a series of guidance cuts implemented through fiscal 2024.
However, he said there are “a number of drivers in the story that make investors constructive at current levels.” The company has new products that can generate positive expectations, and Sridhar Ramaswamy, the new CEO, can bring more product focus to the company.
“Given his technical background and leadership in AI, we expect Mr. Ramaswamy to be a different style of company leader with a product focus and leveraging SNOW's strong position in the data set to build a company for the AI era,” Fishbein wrote. .
Additionally, CFO Mike Scarpelli has committed to staying with the company for at least three more years.
Fishbein had a buy rating on Snowflake shares, though it cut its price target to $210 from $250 late Wednesday.
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Ben Retzes of Melius Research agreed that Ramaswamy seemed like a good choice to take over for Slootman, but noted that Slootman's exit comes after he said last summer that he intended to stay.
He continues to rate the stock as a Hold, citing valuation concerns because Snowflake carries a “default risk.”
Furthermore, he noted that Snowflake no longer manages its long-term goal externally. “We were thinking about a $10 billion product revenue forecast [fiscal 2029] “I put a synthetic floor on the stock, and now that seems to have disappeared.”
