To The Moon

$Salesforce.com(CRM)$ $Snowflake(SNOW)$

While Nvidia stole the spotlight on Wednesday after the market closed, we’ve already covered its earnings review—Now, let’s shift our focus to two other major companies that reported earnings: Snowflake and Salesforce. The market reacted differently to each—Snowflake surged about 10% after hours, while Salesforce dropped around 4%. So, what exactly happened? Let’s break it all down in this articles.

Snowflake Earning

For the quarter, Snowflake delivered strong results, with beats across the board. Its annual guidance was solid as well, with only a minor miss in free cash flow margin—coming in at 25% versus the expected 26%. Despite that, the company is performing well, with free cash flow margin improving by 3,380 basis points quarter-over-quarter and 20 basis points year-over-year. Looking at a two-year perspective, margins are trending in the right direction, though stock-based compensation (SBC) as a percentage of revenue remains a key point of discussion, which we’ll dive into later in this articles.

Strong Performance Across the Board: Snowflake beat expectations in most key metrics, with solid execution despite a minor free cash flow margin miss (reported at 25% versus the market’s 26%).

Improving Margins: Free cash flow margins increased by 3,380 basis points quarter-over-quarter and by 20 basis points year-over-year. Over a two-year span, margins show an encouraging upward trend.

Revenue and Customer Growth: Product Revenue: Up 28% year-over-year for fiscal 2025. Net Revenue Retention: Remains high at 126%, showcasing strong customer stickiness.

Customer Base: Total customers exceeded 10,000, growing 19% year-over-year, with a 27% increase in customers contributing over $1 million in revenue.

Stock-Based Compensation (SBC): While SBC remains a significant expense, management expects it to decrease as a percentage of revenue—from 41% to 37% by fiscal 2026, with further improvements anticipated.

Despite a slight deceleration in growth rates, the company is expanding its customer usage and enhancing its product offerings, especially in data integration and AI.

Overall, Snowflake’s earnings reflect strong execution and robust customer growth, even as it navigates challenges like stock-based compensation and a natural deceleration in growth rates

Fundamental Analysis

Product revenue grew 28% year-over-year for fiscal 2025, with a net revenue retention rate of 126%. Total customers surpassed 10,000, marking a 19% increase year-over-year, while those generating over $1 million in revenue grew at an even faster rate of 27%. Over the past three years, Snowflake’s customer base has expanded by 87%, reflecting a compound annual growth rate (CAGR) of 23.2%. Although net revenue retention is slightly declining, it remains an industry-leading 126%.

While revenue growth is slowing, the absolute dollar amount is rising, and at some point, investors will question whether the trend will continue downward or reverse. However, a promising sign is that large customers with revenue above $1 million saw a slight reacceleration in growth, increasing from 25.2% last quarter to 27.5%. Snowflake also addressed stock-based compensation, stating that in fiscal 2026, SBC as a percentage of revenue is expected to decrease from 41% to 37%, with further reductions in the years ahead. Though this is a step in the right direction, 37% is still a significant figure.

Remaining Performance Obligations and Guidance

Remaining performance obligations (RPO) continue to grow, with a solid increase in the last quarter. Notably, 48% of RPO is expected to be recognized as revenue within the next 12 months. For fiscal 2026, product revenue growth is projected at 24%, reflecting a continued deceleration as the company scales. Non-GAAP product gross margin is expected to be 75%, with an operating margin of 8%—an improvement from fiscal 2025. Adjusted free cash flow margin is forecasted at 25%, a slight miss compared to the market’s expected 26%.

Snowflake projects product revenue growth of 24% for fiscal 2026 and expects 48% of remaining performance obligations (RPO) to be recognized as revenue over the next 12 months.

Cash Flow

Snowflake continues to demonstrate strong cash flow performance, despite a slight miss in free cash flow margin expectations. For the quarter, free cash flow margin stood at 25%, just below the market’s anticipated 26%. However, margins are improving, with a 3,380 basis point increase quarter-over-quarter and a 20 basis point increase year-over-year, indicating positive long-term momentum. Additionally, non-GAAP adjusted free cash flow margin for fiscal 2026 is projected at 25%, reflecting stable cash generation. While stock-based compensation (SBC) remains a significant expense, management expects it to decline as a percentage of revenue, contributing to improved profitability over time. Overall, Snowflake’s strong cash flow growth supports continued investments in product expansion, AI capabilities, and customer acquisition.

Key Earnings Call Takeaways

During the earnings call, management addressed the developments in AI, including DeepSeek and Meta’s $200 billion investment. While acknowledging the rapid evolution of the space, they emphasized Snowflake’s strength in enabling customers to consolidate data and extract value by leveraging the best models available. The company continues to work closely with major cloud providers and AI players.

Another key discussion point was regarding large customers who exceeded their contracted capacity earlier than expected. Instead of renewing their contracts ahead of schedule, they are now moving to a pay-as-you-go model. Management expects these customers to sign long-term contracts within the next one to six months, indicating strong demand for Snowflake’s services.

Risk and challenges

Snowflake faces several risks and challenges despite its strong growth. Decelerating revenue growth is a key concern, as product revenue growth is projected to slow to 24% in fiscal 2026, raising questions about long-term scalability. Stock-based compensation (SBC) remains high, accounting for 41% of revenue, though management expects it to gradually decline. This dilution risk could impact investor sentiment. Additionally, competition in the cloud data space is intensifying, with major players like AWS, Google Cloud, and Microsoft Azure expanding their offerings. Another challenge is customer consumption-based pricing, which, while flexible, makes revenue less predictable in uncertain macroeconomic conditions. Lastly, profitability improvements depend on efficient cost management, including maintaining healthy free cash flow margins while balancing investments in AI, data integration, and infrastructure.

Snowflake Stock Performance

At $186 premarket, Snowflake’s stock is back above the 50-day and 20-day moving averages, nearing last week’s highs. Overall, the company continues to execute well, proving skeptics wrong with another strong quarter.

Conclusion

This earnings season has been unpredictable—some companies with strong reports saw their stocks fall, while others with weaker results rallied. Snowflake delivered an impressive quarter, leading to stock gains, while Salesforce, despite strong free cash flow growth, faced market skepticism due to slowing revenue growth.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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