Snowflake's revenue exceeded expectations, increasing by 35% last quarter, with AI revenue surging. The company raised its full-year guidance, and its stock price rose in after-hours trading. | Earnings Insights

Snowflake's revenue exceeded expectations, increasing by 35% last quarter, with AI revenue surging. The company raised its full-year guidance, and its stock price rose in after-hours trading. | Earnings Insights

Snowflake, a leading AI data cloud provider, delivered earnings that significantly exceeded market expectations.

After the US stock market closed on Wednesday, September 2nd, Eastern Time, Snowflake announced that for the second fiscal quarter of 2027 ("Q2"), ending July 31, 2026, revenue increased by 35% year-over-year to $1.55 billion, exceeding analysts' expectations of approximately $1.49 billion by about 4%; core product revenue was $1.49 billion, an increase of 37% year-over-year, also exceeding market expectations of $1.42 billion.

The earnings performance was even more impressive. In the second quarter, adjusted diluted earnings per share (EPS) on a non-GAAP basis was $0.62, nearly 38% higher than analysts' expectations of $0.45; non-GAAP operating profit was $237 million, higher than the market expectation of approximately $187 million, corresponding to an operating profit margin of 15.3%, a significant improvement compared to the same period last year.

More importantly, Snowflake raised its annual guidance for fiscal year 2027. The company expects full-year product revenue of $6.07 billion for fiscal year 2027, a 36% year-over-year increase, higher than the previous guidance of $5.84 billion and about 3.6% higher than analysts' expectations of $5.86 billion; the full-year non-GAAP operating margin expectation was raised from 13.5% to 14.5%.

Snowflake’s product revenue guidance for the third fiscal quarter (“Q3”) is $1.588 billion to $1.593 billion, which is higher than the market expectation of $1.51 billion.

Following the earnings release, Snowflake (SNOW), which had already closed down about 4.4% during Wednesday's regular trading session, rebounded sharply in after-hours trading, rising by more than 20% at one point. Analysts believe the core logic behind the market's buying was: accelerated product revenue growth for three consecutive quarters, a "meaningful leap" in AI revenue, simultaneous expansion of profit margins, and the company's significant upward revision of its full-year product revenue guidance. These factors alleviated investor concerns about weak enterprise software consumption and uncertainty surrounding the commercialization of AI.

The biggest highlight is the continuous acceleration of product revenue and the recovery of the consumer-driven business model.

For Snowflake, product revenue is more critical than total revenue. Snowflake uses a consumer-based revenue model, recognizing revenue only when customers use the platform's computing, storage, and data transfer resources. Therefore, product revenue better reflects actual usage and customer spending intentions.

Snowflake's product revenue reached $1.492 billion in the second quarter, a 37% year-over-year increase, exceeding the 35% growth rate of total revenue. CFO Brian Robins stated that this marks the company's "third consecutive quarter of accelerated product revenue growth," driven by both demand for its core data platform and a significant increase in AI revenue.

This is very important for the market. Over the past few quarters, cloud software and data infrastructure companies have generally faced the challenge of customers optimizing cloud spending and cutting IT budgets. The accelerated revenue growth of Snowflake products indicates that customers are not just signing contracts, but are continuously consuming platform resources, demonstrating a recovery in consumer momentum.

AI is no longer just a narrative: CoCo and CoWork account numbers are growing rapidly.

Snowflake's management has repeatedly emphasized the power of AI this quarter. CEO Sridhar Ramaswamy stated that Snowflake is "driving an enterprise AI revolution," with AI strengthening the company's business flywheel and driving new workloads, user growth, and platform consumption.

From a business metrics perspective, Snowflake disclosed:

  • CoCo has over 9,100 accounts, with over 2,000 new accounts added in a single quarter;
  • CoWork expands to 5,800 accounts;
  • In the first half of fiscal year 2027, more than 330 officially available product capabilities were launched, representing a 35% year-over-year increase.
  • The company recently launched Cortex Sense and Cortex AI Gateway, the latter extending AI from insight to action by integrating Natoma.

It's worth noting that the company did not disclose the absolute size of its AI revenue, but the CFO explicitly mentioned a "meaningful leap in AI revenue." This means that AI's contribution to revenue growth is moving from a narrative to a financial metric, and was a significant catalyst for the after-hours stock price surge.

Profit margins improved in tandem; growth was not achieved by "burning money."

Another highlight for Snowflake this quarter was the improvement in profit margins while revenue accelerated.

Second-quarter non-GAAP operating profit was $237 million, corresponding to an operating margin of 15.3%, higher than 11% in the same period last year and also exceeding market expectations. The company raised its full-year non-GAAP operating margin guidance from 13.5% to 14.5%, and expects a third-quarter operating margin of 15.5%.

From the perspective of cost structure, Snowflake's operating leverage is becoming apparent:

  • Non-GAAP sales and marketing expenses accounted for 32% of revenue, lower than 34% in the same period of the previous year;
  • Non-GAAP R&D expenses accounted for 20% of revenue, lower than 22% in the same period of the previous year;
  • The non-GAAP total operating expense ratio was 57%, lower than 62% in the same period last year.

However, the company remains unprofitable under GAAP. Second-quarter GAAP net loss was $192 million, narrowing from a loss of $298 million in the same period last year; GAAP operating loss was $263 million, with an operating loss rate of 17%, a significant improvement from 30% in the same period last year. High share-based compensation expenses are one of the key reasons for the GAAP loss.

The comprehensive upward revision of the guidelines was the most direct "trigger point" for after-hours trading.

Snowflake has significantly raised its full-year guidance this time.

The company projects full-year product revenue of $6.07 billion for fiscal year 2027, an increase of $230 million from its previous guidance of $5.84 billion, and higher than analysts' expectations of $5.86 billion. This represents a full-year product revenue growth rate of 36%, compared to the previous expectation of 31%.

The third-quarter guidance was also strong. The company expects third-quarter product revenue of $1.588 billion to $1.593 billion, representing a year-over-year increase of 37% to 38%, exceeding analysts' expectations of $1.51 billion.

This means that the strong performance in the second quarter was not a one-off event. Management's outlook for the third quarter and the full year indicates that Snowflake believes consumer demand will continue in the second half of the year, with AI-related workloads and demand for its core data platform continuing to drive revenue growth.

Customer quality and order backlog continue to support growth visibility.

In terms of customer metrics, Snowflake maintains a strong penetration rate among enterprise customers.

The company's net revenue retention rate was 126% in the second quarter. Although it has declined from the earlier extremely high level, it is still at a relatively high level among large enterprise software companies, indicating that existing customers are still expanding their usage.

The company also disclosed:

  • The number of customers with product revenue exceeding $1 million in the past 12 months reached 828, representing a year-on-year increase of 27%.
  • Forbes Global 2000 clients reached 829;
  • Remaining performance obligations (RPO), a metric for measuring future revenue, were $9 billion, up 30% year-over-year.
  • The company added 692 new customers in the quarter, a 32% year-over-year increase, including 14 Forbes Global 2000 customers.

A 30% increase in RPO provides some visibility into future revenue. However, since Snowflake's revenue recognition depends on the actual pace of customer spending, RPO is not equivalent to future product revenue growth and still needs to be observed in conjunction with consumption trends.

Cash flow is one of the few flaws: free cash flow is lower than expected.

Despite exceeding expectations in both revenue and profit, Snowflake's cash flow performance was relatively weak this quarter.

Operating cash flow for the second quarter was $91.4 million, and free cash flow was $83.8 million, lower than market expectations of approximately $104 million; the free cash flow margin was 5.4%. Adjusted free cash flow was $92.3 million, corresponding to an adjusted free cash flow margin of 6.0%.

The company maintained its full-year adjusted free cash flow margin guidance of 23%, indicating that management believes the cash flow pressure in the second quarter was more of a temporary factor. However, for highly valued software stocks, whether free cash flow can be consistently converted into shareholder returns remains a key focus for the market.

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