Snowflake Inc. (SNOW) Q3 2026 Earnings Call Transcript
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Overview
The earnings call highlights several positive aspects: Snowflake's expansion into a complete data platform, strong AI integration, and a $200 million partnership with Anthropic. The company's optimistic guidance, increased product revenue expectations, and positive customer adoption trends in AI products contribute to a positive sentiment. However, some lack of clarity in management's responses and guidance for FY '27 slightly tempers the enthusiasm. Overall, the positive factors outweigh the negatives, suggesting a stock price increase in the short term.
Key Financial Performance
Product Revenue $1.16 billion, up 29% year-over-year. Growth attributed to durable growth in core business and expansion into data engineering and AI workloads.
Remaining Performance Obligations (RPO) $7.88 billion, with year-over-year growth accelerating to 37%. This reflects strong bookings and customer retention.
Net Revenue Retention Stable at 125%. Indicates healthy customer retention and expansion within the existing customer base.
New Customers Added 615 new customers added in Q3, a record number. Reflects strong go-to-market execution.
Global 2000 Customers 776 customers, with an average spending of $2.3 million on a trailing 12-month basis. Many are in early stages of their Snowflake journey, indicating potential for further growth.
Non-GAAP Product Gross Margin 75.9%, reflecting efficient operations and financial discipline.
Non-GAAP Operating Margin 11%, expanded more than 450 basis points year-over-year. Indicates improved efficiency across the company.
Non-GAAP Adjusted Free Cash Flow Margin 11%, showing healthy cash flow generation.
Share Repurchase $233 million used to repurchase 1 million shares at a weighted average price of $223.35 per share. $1.3 billion remains on the authorization.
Cash and Investments $4.4 billion in cash, cash equivalents, short-term and long-term investments, indicating strong liquidity.
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Operating Highlights
Snowflake Intelligence: Achieved the fastest ramp in product adoption in company history with 1,200 customers using next-generation agentic AI capabilities. Examples include TS Imagine and Fanatics leveraging Snowflake Intelligence for operational efficiencies and customer insights.
AI Revenue Run Rate: Achieved $100 million in AI revenue run rate one quarter earlier than anticipated, reflecting real-world enterprise usage.
Cortex AI for Financial Services: Introduced a suite of AI capabilities tailored for financial services, enabling secure deployment of AI models and applications.
New Customer Acquisition: Added a record 615 new customers in Q3, including notable partnerships with Coca-Cola Consolidated and PayPal.
Global Systems Integrators: Accenture launched a Snowflake Business Group, committing to train over 5,000 professionals on Snowflake solutions.
Partnerships: Announced partnerships with SAP, Google Cloud, and Anthropic to enhance AI adoption and data integration.
Operational Efficiency: Achieved 75.9% non-GAAP product gross margin and expanded non-GAAP operating margin by 450 basis points year-over-year to 11%.
Disaster Recovery: Seamlessly transferred over 300 mission-critical workloads during a major cloud service provider outage, ensuring business continuity.
Strategic Acquisitions: Acquired Datometry's software migration technology and agreed to acquire Select Star to enhance data migration and cataloging capabilities.
AI Influence: AI influenced 50% of bookings signed in Q3, with 28% of all use cases deployed incorporating AI.
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Risk or Challenges
Market Conditions: Potential risks from economic uncertainties and market conditions that could impact customer spending and adoption of Snowflake's services.
Competitive Pressures: Intense competition in the AI and data cloud space from other major players like AWS, Google Cloud, and Microsoft Azure.
Regulatory Hurdles: Potential challenges in meeting rigorous security and compliance standards, especially in regulated industries like financial services.
Supply Chain Disruptions: No explicit mention of supply chain disruptions in the transcript.
Economic Uncertainties: Economic uncertainties could impact customer budgets and spending on Snowflake's services.
Strategic Execution Risks: Risks associated with scaling operations, maintaining high growth rates, and integrating acquisitions like Datometry and Select Star.
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Guidance & Outlook
Q4 Product Revenue: Expected to be between $1.195 billion and $1.2 billion, representing a 27% year-over-year growth.
FY '26 Product Revenue Guidance: Raised to approximately $4.446 billion, representing 28% year-over-year growth.
FY '26 Margin Targets: Reiterated with non-GAAP product gross margin of 75%, non-GAAP operating margin of 9%, and non-GAAP adjusted free cash flow margin of 25%.
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Shareholder Return Plan
Share Repurchase Program: In Q3, Snowflake used $233 million to repurchase 1 million shares at a weighted average price per share of $223.35. The company has $1.3 billion remaining on its original authorization for $4.5 billion through March of 2027.
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Key Q&A
Q:Brian, when we look at the growth rates on product revenue this quarter, really attractive at 29%. It was just about 3% beat slightly below 3% beat versus the midpoint of guidance. But at the same time, when I look at your Q4 guide, it's probably the best sequential guide I've seen from the company in a couple of years. Can you help us square that?
A:Brian Robins explained that the company delivered 29% year-over-year revenue growth, with the quarter playing out as expected except for a hyperscaler outage that impacted revenue by $1-2 million. He emphasized that quarterly beats are not the best signal of business fundamentals and highlighted the $51 million increase in fiscal year guidance, reflecting strong customer behavior heading into Q4.
Q:Sridhar, Snowflake Intelligence is one of the fastest adopting products. Can you give us a color on the types of customers taking on your AI products, some of the use cases Snowflake Intelligence is unlocking, and comment on Cortex AI adoption?
A:Sridhar Ramaswamy described Snowflake Intelligence as amplifying customer investments in high-quality data. He provided examples of use cases, such as creating data agents for sales teams and enabling complex data analysis. Customers like the USA Bobsled team, Fanatics, and ServiceNow are using Snowflake Intelligence to create specialized data agents. He also mentioned strong interest from CIOs and CEOs in adopting Snowflake Intelligence for their businesses.
Q:Sridhar, can you talk about the go-to-market strategy, particularly with the 600 new customer wins? Are you landing with more products now, or is it still landing with the core data warehouse and then expanding?
A:Sridhar Ramaswamy explained that Snowflake Intelligence plays a key role in showcasing the power of data during customer pitches. The company uses hyper-customized demos and proof of concepts to demonstrate value. AI is influencing close to 50% of new customer acquisitions, and products like OpenFlow are helping accelerate data lifecycle processes. Snowflake is expanding its offerings from analytics to a complete data platform.
Q:Sridhar, when do you expect the batch of AI go-lives to go up, and how does this influence the platform's trajectory?
A:Sridhar Ramaswamy stated that the Q4 guidance reflects strong consumption trends and disciplined forecasting. Accelerating go-lives is a priority, and AI is being used to speed up use case implementations. These factors contribute to the company's optimistic outlook.
Q:Brian, on the $200 million partnership with Anthropic, is that in backlog?
A:Brian Robins clarified that the $200 million is a buy-side commitment from Snowflake to Anthropic. Sridhar Ramaswamy added that this partnership reflects confidence in AI driving more revenue and includes a broader go-to-market motion.
Q:Sridhar, can you frame the impact of migrations on product revenue this quarter versus last quarter?
A:Sridhar Ramaswamy noted that migrations are still in the early stages, with AI and products like Snowflake Intelligence accelerating the process. He mentioned the acquisition of Datometry to facilitate migrations. Brian Robins added that Q4 guidance reflects annual guidance considerations and should not be overanalyzed for quarterly margin changes.
Q:Sridhar, zero-copy agreements are being discussed a lot. How do you think they will impact Snowflake?
A:Sridhar Ramaswamy explained that zero-copy agreements facilitate efficient data sharing between SaaS vendors and Snowflake, driving broader data collaboration. These agreements enhance Snowflake's role as a central data platform and improve customer access to valuable data.
Q:Are customers explicitly tying their Snowflake investments to their AI budgets, and how is this influencing buying habits?
A:Sridhar Ramaswamy confirmed that Snowflake is becoming central to enterprise AI strategies. Customers are adopting Snowflake Intelligence and other AI products due to their ease of use and risk-free consumption model. This is leading to broader adoption and increased customer confidence.
Q:What about the Snowflake platform is allowing customers to accelerate their AI journeys, and is the market standardizing around fewer platforms?
A:Sridhar Ramaswamy highlighted Snowflake's ability to simplify data strategies and integrate AI seamlessly. He mentioned investments in products like OpenFlow and Postgres to expand the platform's capabilities. The market is increasingly recognizing Snowflake as a central data platform.
Q:Can you explain the confidence and direction of the expansion rate as customers leverage the AI portfolio?
A:Sridhar Ramaswamy described a virtuous cycle where customers expand their use cases after initial adoption, driven by the value delivered by Snowflake's AI products. Brian Robins emphasized that product revenue is the leading indicator of business health, and annual guidance reflects long-term trends.
Q:What does the $100 million AI revenue include, and what is the next milestone?
A:Sridhar Ramaswamy explained that the $100 million includes the Cortex product suite and Snowflake Intelligence. The next milestone is broader adoption of Snowflake Intelligence and making all data in Snowflake AI-ready, enabling seamless data sharing and use case acceleration.
Q:How do you balance the opportunity for growth with margin expansion?
A:Sridhar Ramaswamy stated that Snowflake can invest in growth while improving efficiency. The company is focusing on upskilling its workforce and leveraging AI to enhance productivity. Brian Robins added that the company will continue to drive revenue growth responsibly.
Q:Was Q3 a strong execution quarter with normalized migration activity?
A:Sridhar Ramaswamy noted that Q3's 2.5% beat was solid and consistent with the company's guidance philosophy. He emphasized that large migrations are lumpy and not directly tied to quarterly results. Brian Robins reiterated that annual guidance is the best indicator of business trends.
Q:What is the outlook for FY '27, and are there any headwinds or tailwinds to consider?
A:Brian Robins stated that FY '27 guidance will depend on consumption behavior in early 2027. He emphasized that the company uses detailed AI models for forecasting and will maintain its guidance philosophy.
Q:What is the significance of the 4 nine-figure deals signed this quarter?
A:Sridhar Ramaswamy explained that these deals reflect customer confidence in Snowflake's value. However, bookings are not immediate revenue indicators, and product revenue remains the best measure of customer spending trends.
Q:Review of Unclear Management Responses
A:Management avoided providing specific growth rates for the $100 million AI revenue milestone and did not detail the exact impact of the 4 nine-figure deals on future revenue. Additionally, they did not provide clear guidance on FY '27, citing the need to observe early 2027 consumption trends.
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Earnings Word Cloud
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SNOW Transcript
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