(Bloomberg) — Snowflake Inc. fell to its biggest drop ever after the software maker delivered a disappointing sales forecast and announced that CEO Frank Slootman would step down.
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Product revenue — a closely watched metric — will range between $745 million and $750 million in the first quarter, Snowflake said in a statement on Wednesday. Analysts expected $769.5 million on average, according to data compiled by Bloomberg. Forecasts for the full year were also well below expectations.
Shares fell 22% in pre-market trading Thursday after the forecast was published. If the decline continues, this will be the largest decline on record for Snowflake.
Snowflake's revenue growth slowed sharply in 2023 after many companies reduced their software purchases. This trend, called cost optimization, has also affected cloud service providers such as Amazon.com Inc. and Microsoft Corp. But these two companies, which lead the computing power and storage rental market, have recently indicated that this cost-cutting behavior among customers is beginning to wane.
The challenge of revitalizing Snowflake will fall to the company's senior vice president of artificial intelligence, Sridhar Ramaswamy, who serves as CEO. He joined Snowflake last year through the company's acquisition of Neeva, an AI-powered search engine. Ramaswamy previously ran Google's advertising products.
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Its rise underscores the focus on AI in Snowflake. The company, which makes data analysis and storage software, will benefit from new ventures related to generative artificial intelligence, Mandeep Singh and Damian Remmertz of Bloomberg Intelligence said before the earnings call. Snowflake's products may be attractive when “enterprises aim to use their proprietary data to improve large underlying language models without having to move the data to public clouds.”
The rout weighed on Snowflake's technology peers, with Datadog Inc. and Datadog Inc. and MongoDB Inc. and Cloudflare Inc. and Confluent Inc.
The CEO change is effective immediately, and Ramaswamy will join the Board of Directors. The 57-year-old will receive about $100 million in stock awards over the next five years, plus an annual salary of $750,000, according to Wednesday's filing. He will also receive an annual incentive bonus targeting 100% of his salary.
Slootman, who has run the company since 2019, will remain chairman of the board. He acquired Snowflake in 2020 and turned the company into a major force in the software industry. This was the third IPO for Slootman, who previously oversaw ServiceNow Inc.'s IPOs. and Data Domain Inc.
This is a “huge loss for Snowflake,” said Mike Spencer, head of investor relations at software maker Salesforce. “Just look at his track record – the guy has been a great CEO over the years, taking three companies public. He's a proven winner.” Spencer added that he had heard good things about Ramaswamy.
Slootman has long been known as one of technology's most powerful leaders. He said the CEO needs to be “confrontational like crazy” on an episode of the No Priors podcast in 2023, adding that leaders must push for more urgency. In 2021, he drew criticism when he said diversity goals were secondary to meritocracy in hiring. Slootman later apologized, saying he did not mean to suggest that diversity and meritocracy were “incompatible.”
His departure from the top job at Snowflake is a “huge surprise,” Evercore ISI analyst Kirk Mattern said in a note, adding that Ramaswamy had “big shoes to fill.”
On a call with analysts on Wednesday, Ramaswamy said spending on artificial intelligence would benefit the company.
“There is no AI strategy without a data strategy, and this has presented a tremendous opportunity,” he said. “We must have a clear focus and move faster to bring innovation on the Snowflake platform to our customers and partners. That will be my focus.”
In contrast to weak expectations, Snowflake's results were stronger than expected. In the fiscal fourth quarter, product revenue increased 33% to $738.1 million. Analysts estimate $723.3 million on average. Earnings, excluding certain items, were 35 cents per share in the period ending January 31. This compares to the average expectation of 18 cents.
The “halo effect” of generative AI has helped drive data modernization efforts among Snowflake customers, Guggenheim Securities analyst John DiVucci said in a pre-earnings note.
Snowflake now has 461 customers who spent more than $1 million over a 12-month period, compared to 436 customers in the previous quarter. Remaining performance obligations – another key measure of growth – were $5.2 billion, exceeding estimates.
Consumption trends are “improving, but not returning to pre-fiscal 2024 levels,” Chief Financial Officer Mike Scarpelli said on the conference call. The CFO, who joined the company in August 2019, said he is committed to staying with Snowflake for at least three more years.
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