Revenue forecasting is a challenge, so we prefer to give conservative guidance

Snowflake CEO Frank Slutman told CNBC’s Jim Kramer on Wednesday that the company prefers to give conservative guidance, saying the way it recognizes revenue creates considerable uncertainty in forecasting.

Slootman’s comments in an interview with Mad Money came after the data analysis firm reported fourth-quarter and fiscal 2022 results. somewhat to fall by about 22%.

Investors have been working on the company’s slowest revenue growth since at least 2019, as well as its guidelines for fiscal 2023. Snowflake said it expects product revenue to increase between 65% to 67% in the fiscal year, just around expectations. analysts for 66% growth, according to FactSet. This would be a significant delay compared to previous years.

“We apply a data-driven approach that you would expect from a data management company. We don’t put our finger in the wind and say, “Well, we think that will be it,” Slutman said. “We don’t do things that way, so we prefer to get out of the conservative position and be able to move things up.”

In fiscal 2022, revenue from Snowflake’s products – which account for the bulk of its total sales – jumped nearly 106%, according to earnings on Wednesday.

Slootman noted that Snowflake ultimately exceeded the product revenue forecast for fiscal 2022, which the company provided on March 3, 2021. In this quarterly report, Snowflake forecasts product revenue growth of 82% on an annual basis.

Snowflake records revenue using a “consumption model,” Slootman said, rather than the typical subscription model common in the software industry. It may take time for investors to understand how this affects performance and its ability to forecast for the next few quarters, Slootman said.

“We report revenue for what people actually consume during the quarter. We have tons and tons of clients with whom we have zero history, we have to somehow design exactly what they will do and how they will develop, “he said.

Snowflake’s cloud-based software allows customers to search and analyze large amounts of data, with the ability to increase capacity as they need. Snowflake had a total of 5,944 customers at the end of its fiscal year 2022, up 44% from a year earlier.

“In a consumption model, this is not the same as a [software-as-a-service] a model in which things are contractual and have a very different rhythm. Over time, people will get it. They will grow up with it, I hope they will get used to it, “said Slutman, a veteran of the technology industry who previously ran ServiceNow.

He helped launch Snowflake in September 2020, which at the time was the biggest IPO of the software ever.

Shares of Snowflake have fallen approximately 22% for the year so far, excluding Wednesday’s after-hours movement. Stock struggles come as Wall Street shifts its focus to more protective parts of the market and away from unprofitable, growth-oriented companies like Snowflake.

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