10-Q: Snowflake Reports Increased Losses Amidst Strong Revenue Growth and Declining Customer Retention

Snowflake Inc. reported a significant increase in net loss for the quarter ended April 30, 2025, despite a 26% rise in revenue, alongside a decline in its net revenue retention rate and ongoing legal challenges.

Summary

• Snowflake Inc. reported total revenue of $1,042.1 million for the three months ended April 30, 2025, a 26% increase from $828.7 million in the same period last year.
• Product revenue, the primary driver, grew 26% to $996.8 million, up from $789.6 million year-over-year.
• The company's net loss widened to $430.0 million, or $1.29 per share, for the quarter, compared to a net loss of $317.8 million, or $0.95 per share, in the prior year period.
• Operating expenses surged by 26% to $1,140.5 million, primarily driven by a 125% increase in general and administrative expenses, which included a $106.5 million asset impairment charge related to the cease-use of its San Mateo office facility.
• Net cash provided by operating activities decreased to $228.4 million from $355.5 million year-over-year.
• Non-GAAP free cash flow also declined to $183.4 million from $331.5 million in the comparable period.
• The net revenue retention rate decreased to 124% as of April 30, 2025, down from 129% as of April 30, 2024.
• The number of customers with trailing 12-month product revenue greater than $1 million increased to 606 from 479 year-over-year.
• Forbes Global 2000 customers grew to 754 from 727 in the prior year.
• Remaining performance obligations (RPO) stood at $6.7 billion as of April 30, 2025, with approximately 50% expected to be recognized as revenue in the next twelve months.
• The company repurchased $490.6 million of its common stock during the quarter, with $1.5 billion remaining under the authorized stock repurchase program.
• Snowflake is facing multiple class action lawsuits, including a stockholder class action and several cybersecurity-related class actions following customer account breaches in May 2024.

Sentiment

Score: 4

Explanation: While Snowflake demonstrated strong revenue and customer growth, the significant increase in net loss, decline in operating and free cash flow, and a reduction in net revenue retention rate indicate worsening profitability and efficiency trends. The substantial asset impairment charge and ongoing, material legal proceedings related to cybersecurity incidents and a stockholder class action introduce considerable financial and reputational uncertainty, outweighing the positives for the quarter.

Positives

• Total revenue increased by a robust 26% year-over-year to $1,042.1 million, demonstrating continued demand for Snowflake's platform.
• Product revenue, the core business, also grew by 26% to $996.8 million, indicating strong customer consumption.
• The number of customers with trailing 12-month product revenue greater than $1 million increased significantly to 606 from 479, highlighting success in expanding relationships with large enterprises.
• The company expanded its Forbes Global 2000 customer base to 754, up from 727, reinforcing its penetration into major global organizations.
• Remaining Performance Obligations (RPO) grew to $6.7 billion, indicating a strong backlog of contracted future revenue.
• The company maintains a substantial liquidity position with $4.9 billion in cash, cash equivalents, and investments.

Negatives

• Net loss significantly widened to $430.0 million, compared to $317.8 million in the prior year, indicating increased unprofitability.
• Net loss per share increased to $1.29 from $0.95, reflecting the larger losses.
• Net cash provided by operating activities decreased by $127.1 million to $228.4 million, suggesting reduced operational cash generation.
• Non-GAAP free cash flow also saw a notable decline to $183.4 million from $331.5 million.
• The net revenue retention rate declined to 124% from 129%, indicating a slower pace of consumption growth from existing customers.
• General and administrative expenses surged by 125% due to a $106.5 million asset impairment charge related to an office facility exit, impacting overall profitability.
• Product gross margin slightly declined to 71% from 72%, attributed to newly launched product capabilities not yet reaching economies of scale.
• Professional services and other gross margin worsened to (40%) from (35%), indicating higher costs relative to revenue in this segment.

Risks

• The company's ability to accurately forecast future results is limited due to rapid revenue growth, limited operating history, new product features (including AI Technology), and unstable macroeconomic conditions.
• Customer consumption patterns are inherently variable and can be slower than expected, impacting revenue recognition and potentially causing fluctuations in financial results.
• New software releases or hardware improvements may make the platform more efficient, potentially leading to lower consumption for the same workloads if not offset by new use cases.
• The markets in which Snowflake operates are highly competitive, with large public cloud providers (AWS, Azure, GCP) also being competitors, potentially leading to unfavorable pricing or exclusion from opportunities.
• Failure to innovate in response to changing customer needs, new technologies, or evolving industry standards could harm the business.
• Unsuccessful execution of investments in AI Technology, including generative AI, or lack of access to GPUs, could harm business and financial results.
• Actual or perceived security breaches or unauthorized access to customer data, company data, or the platform could harm reputation, reduce demand, and incur significant liabilities, as evidenced by recent class action lawsuits.
• Disruptions, outages, defects, or performance problems with Snowflake's platform or the underlying public cloud infrastructure could lead to reduced platform use and increased expenses.
• Fluctuations in financial results are expected due to various factors, making future projections difficult, and failure to meet analyst expectations could lead to stock price decline.
• Inability to effectively develop and expand sales and marketing capabilities, particularly for large customers and new markets, could harm customer acquisition and market acceptance.
• Doing business with federal, state, local, and foreign governments and heavily regulated organizations involves heightened risks, including special contract terms, non-standard deployments, and compliance with additional regulations.
• Loss of key management team members or inability to attract and retain skilled employees could harm business and growth prospects, exacerbated by stock price volatility impacting equity awards.
• Unfavorable conditions in the industry or global economy, reductions in cloud spending, or lower than expected consumption could limit business growth.
• Dependence on the development, expansion, and success of partner relationships, including global system integrators and resellers, poses risks if these relationships are not effectively managed.
• International expansion creates operational challenges, including adapting to diverse legal and regulatory environments, data localization laws, and geopolitical tensions (e.g., China).
• The company may require additional capital, which might not be available on acceptable terms, leading to potential dilution or debt obligations.
• Servicing the $2.3 billion convertible senior notes requires significant cash, and insufficient cash flow could lead to default or limitations on future capital raising.
• The conditional conversion feature of the Notes, if triggered, could adversely affect financial condition and operating results, potentially reclassifying debt as current liability.
• Exposure to fluctuations in currency exchange rates could negatively affect results of operations and cash holdings.
• Strategic investments are subject to market-related risks, including volatility and potential impairment losses.
• Intellectual property rights may not adequately protect the business or provide a competitive advantage, and the company may become subject to costly intellectual property disputes.
• Use of open-source software inconsistent with policies or license terms could lead to legal expenses, damages, or costly remediation.
• Stringent and changing data privacy and security obligations (e.g., GDPR, U.K. GDPR, CCPA, DORA, DPDP Act) pose compliance risks, fines, and potential liability.
• Uncertainty in the legal and regulatory landscape for AI Technology, including intellectual property and privacy laws, may result in reputational harm, liability, or adverse consequences.
• Non-compliance with anti-corruption, anti-bribery, and anti-money laundering laws could subject the company to criminal or civil liability.
• Increasing scrutiny and changing expectations regarding ESG practices may result in additional compliance risk and costs, and impact reputation.
• Governmental export and import controls could impair the ability to compete internationally or subject the company to liability for violations.

Future Outlook

Snowflake expects to continue investing significantly in research and development, particularly in data science and AI Technology, and to expand its business domestically and internationally. The company anticipates generating positive net cash flows from operating activities for fiscal year 2026. However, it expects its net revenue retention rate to decrease over the long-term as customer consumption growth primarily relates to existing use cases rather than new ones. The company also anticipates stock-based compensation to increase in absolute dollars but decrease as a percentage of revenue in fiscal 2026 and over time, and general and administrative expenses to follow a similar trend.

Management Comments

• "Our vision is a world where data and AI turn possibilities into reality."
• "We deliver the AI Data Cloud, a network where Snowflake customers, partners, developers, data providers, and data consumers can break down data silos and derive value from a growing number of data sets in secure, governed, and compliant ways."
• "We provide our platform through a customer-centric, consumption-based business model, only charging customers for the resources they use."
• "Our future success depends in large part on the market adoption of our platform, including new product functionality, such as Snowpark and our artificial intelligence and machine learning technology (AI Technology)."
• "We expect our net revenue retention rate to decrease over the long-term as customers that have consumed our platform for an extended period of time become a larger portion of both our overall customer base and our product revenue that we use to calculate net revenue retention rate, and as their consumption growth primarily relates to existing use cases rather than new use cases."
• "We are continuing to monitor the actual and potential effects of general macroeconomic conditions across our business."
• "We expect that our stock-based compensation will increase in absolute dollars as we continue to issue equity awards to our new and existing employees, but will decrease as a percentage of our revenue in fiscal 2026 and continue to decrease over time as we grow."
• "We expect to continue to generate positive net cash flows from operating activities for fiscal 2026."

Industry Context

Snowflake operates in the rapidly evolving and highly competitive cloud computing and data platform market, which is increasingly driven by artificial intelligence and machine learning technologies. The company's focus on a consumption-based model differentiates it from traditional subscription-based software companies. The industry is seeing increased demand for data consolidation and AI-driven insights, but also faces challenges from macroeconomic conditions leading to budget rationalization and consumption optimization by customers. The reliance on major public cloud providers (AWS, Azure, GCP) for infrastructure highlights the interconnectedness and competitive dynamics within the cloud ecosystem, where these providers are also direct competitors.

Comparison to Industry Standards

• Snowflake's 26% revenue growth, while strong, is a deceleration from previous periods, reflecting a broader trend of moderation in growth rates seen across many high-growth cloud software companies as the market matures and macroeconomic headwinds persist. For example, other cloud infrastructure and data analytics providers have also reported slowing growth compared to their peak pandemic-era expansion.
• The decline in net revenue retention rate from 129% to 124% indicates that existing customers are increasing their consumption at a slower pace. This trend is observed across the SaaS industry, where companies are facing pressure from customers to optimize cloud spending, a factor that has impacted peers like Datadog and MongoDB, which have also seen their net retention rates normalize from higher levels.
• The significant increase in net loss and decrease in free cash flow, partly due to a large asset impairment and increased operating expenses, suggests that Snowflake is prioritizing investment in growth and new technologies (like AI) over immediate profitability, a common strategy for companies aiming to capture market share in nascent but high-potential areas, similar to early-stage AI infrastructure companies.
• The company's expansion of Forbes Global 2000 customers and customers with over $1 million in product revenue demonstrates continued success in penetrating the large enterprise market, a key indicator of long-term value in the enterprise software space, comparable to the strategies of established enterprise software vendors like Oracle or SAP in securing large, sticky accounts.

Management Changes

Legal Proceedings

• A former employee filed a charge with the National Labor Relations Board (NLRB) on March 23, 2021, alleging retaliatory termination. An administrative law judge ruled in favor of the employee on September 15, 2023, ordering compensatory and other damages. The company is appealing the ruling to the Board of the NLRB, with a potential loss estimated between zero and $25 million plus interest.
• A stockholder class action lawsuit was filed on February 29, 2024, in the U.S. District Court in the Northern District of California against the company, its former CEO, and CFO, alleging violations of Sections 10(b) and 20(a) of the Exchange Act. An amended complaint was filed on October 28, 2024, and the company filed a motion to dismiss on December 23, 2024. The lead plaintiff filed a second amended complaint on April 7, 2025, and the company plans to file another motion to dismiss by June 6, 2025. Four additional securities derivative claims have been filed and stayed pending the class action's resolution. The company is unable to estimate any reasonably possible loss.
• Multiple class action lawsuits were filed starting June 13, 2024, in the U.S. and Canada, alleging the company failed to secure systems, leading to the exfiltration of personally identifiable information from customer accounts. These U.S. cases were combined into a multidistrict litigation in the District of Montana on October 4, 2024. Representative complaints for consumer and financial institution plaintiffs have been filed, with the latest (third amended consumer complaint, including LAUSD data breach) filed on May 20, 2025. The company filed a motion to dismiss the second amended consumer complaint on May 16, 2025, and its deadline to respond to the FI Plaintiff complaint is June 26, 2025. The company is unable to estimate any reasonably possible loss.

Related Party Transactions

• A member of Snowflake's board of directors serves as the Chief Executive Officer of a privately-held company (Related Party) that has been a Snowflake customer since 2018.
• During the three months ended April 30, 2024, Snowflake made a strategic investment of approximately $5.0 million by purchasing non-marketable equity securities issued by this Related Party.
• Revenue recognized from this Related Party was not material for the three months ended April 30, 2025, or April 30, 2024.
• As of April 30, 2025, and January 31, 2025, the company did not have a material accounts receivable balance due from the Related Party.

Stakeholder Impact

• **Shareholders**: Face potential dilution from future equity issuances (including convertible notes conversion), stock price volatility, and the impact of the stock repurchase program. They are also exposed to significant legal costs and potential liabilities from ongoing class action lawsuits.
• **Employees**: Compensation includes significant stock-based components, making their overall compensation sensitive to stock price fluctuations. The company faces intense competition for talent, particularly in engineering and sales, and is managing recent executive leadership changes.
• **Customers**: Benefit from the consumption-based model and new AI features, but are impacted by macroeconomic conditions that may lead to budget rationalization and consumption optimization. They are also directly affected by cybersecurity incidents, even if not caused by Snowflake's systems, due to the shared responsibility model.
• **Partners**: The company's growth strategy relies heavily on developing and expanding relationships with global system integrators, managed service providers, and resellers, impacting their business opportunities and the quality of customer implementations.
• **Creditors**: Holders of the $2.3 billion convertible senior notes are senior to common stockholders. The company's ability to service this debt and potentially repurchase notes depends on future cash flow generation.

Next Steps

• Continue to invest significantly in research and development to improve the platform, including in data science and AI Technology.
• Focus on expanding the business both domestically and internationally, including meeting heightened requirements for government and regulated industries.
• Monitor and manage the impact of macroeconomic conditions on customer consumption patterns.
• Continue efforts to attract new customers and drive increased consumption and adoption of new use cases among existing customers, particularly large enterprises.
• Vigorously defend against ongoing legal proceedings, including the stockholder class action and cybersecurity-related class actions.
• File a motion to dismiss the second amended complaint in the stockholder class action lawsuit on or before June 6, 2025.
• Respond to the FI Plaintiff representative complaint in the multidistrict litigation by June 26, 2025.
• Continue to execute the authorized stock repurchase program, with $1.5 billion remaining available.

Key Dates

Recommendation

Keywords

Cloud Data Platform, AI Data Cloud, Consumption-based Model, Data Warehousing, Artificial Intelligence, Machine Learning, Snowpark, Snowflake Marketplace, SEC Filing, 10-Q, Financial Results, Revenue Growth, Net Loss, Cash Flow, Operating Expenses, Net Revenue Retention Rate, Remaining Performance Obligations, Cybersecurity, Legal Proceedings, Stock Repurchase, Convertible Senior Notes, Corporate Governance, Public Cloud Infrastructure, Data Governance, Risk Management