Snowflake‘s (NYSE: SNOW) inventory plunged 15% on Aug. 22 after it posted its newest earnings report. For the second quarter of fiscal 2025, which ended on July 31, the cloud-based information warehousing firm’s income rose 29% 12 months over 12 months to $869 million and cleared analysts’ estimates by $19 million. Its adjusted internet earnings fell 21% to $64 million, or $0.18 per share, however nonetheless beat the consensus forecast by two cents.

Snowflake exceeded Wall Avenue’s expectations, however its declining retention charges, dim outlook, and up to date information breach all weighed down the inventory. CEO Frank Slootman’s abrupt departure in February and Berkshire Hathaway‘s current forged much more darkish clouds over its future. Snowflake now trades barely beneath its IPO worth of $120, however is it the precise time to purchase or promote the inventory?

What does Snowflake do?

Massive organizations typically scatter their information throughout a broad vary of software program, companies, and computing platforms. That fragmentation can create inefficient “silos” and make it troublesome to make data-driven selections. To treatment that, corporations typically funnel their information into cloud-based information warehouses which clear up and manage all of that data so it may be simply accessed by third-party information visualization and analytics apps.

Amazon, Microsoft, and different cloud leaders already combine information warehouses into their very own infrastructure platforms, however their companies typically lock their prospects into their broader ecosystems. That is not a great resolution for corporations that depend on a number of cloud infrastructure platforms.

Snowflake addresses that challenge by operating its cloud-based information warehouse on prime of Amazon Net Providers (AWS), Microsoft Azure, and different cloud platforms. That flexibility, together with a usage-based pricing system that solely expenses prospects for the storage and computing energy they really want, drove its preliminary progress spurt.

Why is Snowflake’s inventory melting?

Snowflake’s product income, which accounts for many of its prime line, surged 120% in fiscal 2021 (which led to January 2021) and 106% in fiscal 2022. Its internet income retention fee, which measures its year-over-year progress per buyer over a trailing-12-month interval, additionally expanded from 168% in fiscal 2021 to 178% in fiscal 2022.

These progress charges drew a stampede of bulls to Snowflake when it went public on Sept. 16, 2020. It greater than doubled from its IPO worth of $120 to $245 on its first commerce, and it will definitely soared to a report excessive of $401.89 on Nov. 16, 2021. However at its peak, its enterprise worth hit $119 billion — or 43 instances the income it could generate in fiscal 2023.

These nosebleed valuations set it up for a steep decline as its income progress cooled off. In fiscal 2023, its product income nonetheless grew 70% — however its internet income retention fee slipped to 158%. In fiscal 2024, its product income solely rose 38% as its internet income retention fee dropped to 131%. That deceleration continued over the previous 12 months.

Knowledge supply: Snowflake. YOY = 12 months-over-year.

For the third quarter, Snowflake expects its product income to solely rise 22% 12 months over 12 months. Analysts anticipate its whole income to develop 24% for the complete 12 months. Snowflake attributes that slowdown primarily to the macro headwinds, and it insists the current information breaches linked to its information warehouses hadn’t meaningfully impacted its enterprise. In the course of the second-quarter 2025 convention name, CEO Sridhar Ramaswamy stated the “challenge wasn’t on the Snowflake aspect” and the corporate discovered “no proof” that its platform was “breached or compromised.” As an alternative, he blamed the intrusion on cybersecurity lapses at a few of its purchasers.

But Snowflake’s margins are nonetheless shrinking as its progress cools off. Within the second quarter, its adjusted product gross, working, and free money movement () margins all shrank 12 months over 12 months — which suggests it is dropping its pricing energy in its area of interest market.

Knowledge supply: Snowflake.

Snowflake expects its adjusted working margin to shrink to only 3% within the third quarter because it ramps up its R&D and go-to-market investments. Analysts anticipate its adjusted EPS to say no 37% for the complete 12 months because it stays unprofitable on a typically accepted accounting ideas (GAAP) foundation. That crimson ink might restrict its beneficial properties so long as rates of interest keep excessive.

Is it time to purchase or promote Snowflake’s inventory?

At $115, Snowflake’s inventory nonetheless appears to be like dear at 10 instances this 12 months’s gross sales. It additionally in all probability will not backside out till its income progress, retention charges, and margins stabilize for just a few consecutive quarters.

That is in all probability why its insiders offered greater than 4 instances as many shares as they purchased over the previous 12 months, and why Berkshire liquidated its stake this 12 months. So for now, I believe it is nonetheless smarter to keep away from or promote Snowflake than to purchase it.

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John Mackey, former CEO of Complete Meals Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of administrators. has positions in Amazon and Berkshire Hathaway. The Motley Idiot has positions in and recommends Amazon, Berkshire Hathaway, Microsoft, and Snowflake. The Motley Idiot recommends the next choices: lengthy January 2026 $395 calls on Microsoft and brief January 2026 $405 calls on Microsoft. The Motley Idiot has a .

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