(Bloomberg) — Snowflake Inc. is heading for its biggest decline ever after the software maker gave disappointing sales guidance and announced that Chief Executive Officer Frank Slootman is stepping down from his position.
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Product sales – a closely watched metric – will be $745 million to $750 million in the first quarter, Snowflake said in a statement on Wednesday. Analysts on average had forecast $769.5 million, according to data compiled by Bloomberg. A full-year forecast also fell well short of forecasts.
After the forecast was released, shares plunged 22% in premarket trading on Thursday. If the decline continues, it will be Snowflake's largest decline on record.
Snowflake's revenue growth slowed sharply in 2023 after many companies scaled back their software purchases. This trend, known as cost optimization, also affected cloud providers such as Amazon.com Inc. and Microsoft Corp. But both companies, which lead the computing power and storage rental market, recently signaled that this cost-cutting behavior among customers has begun to fade.
The challenge of revitalizing Snowflake falls to the company's senior vice president of AI, Sridhar Ramaswamy, who is taking on the role of CEO. He joined Snowflake last year when the company acquired Neeva, an AI-powered search engine. Ramaswamy previously led Google's advertising products.
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His rise underscores the focus on AI for Snowflake. The company, which makes data analytics and storage software, is expected to benefit from new projects related to generative artificial intelligence, Bloomberg Intelligence's Mandeep Singh and Damian Reimertz said ahead of the earnings release. Snowflake's products may be attractive if “enterprises want to leverage their proprietary data to refine fundamental large-scale language models without having to move the data to public clouds.”
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The bust weighed on shares of Snowflake's tech rivals, with Datadog Inc., MongoDB Inc., Cloudflare Inc. and Confluent Inc. all sliding.
The CEO change is effective immediately and Ramaswamy will join the board. According to a filing Wednesday, the 57-year-old will receive about $100 million in stock awards over the next five years, in addition to an annual salary of $750,000. He also receives an annual incentive bonus equal to 100% of his salary.
Slootman, who has led the company since 2019, remains chairman. He took Snowflake public in 2020, turning the company into a major force in the software industry. It was the third IPO for Slootman, who previously oversaw IPOs at ServiceNow Inc. and Data Domain Inc.
Snowflake Chairman and CEO Frank Slootman presented Nvidia CEO Jensen Huang with a snowboard as a gift in June. Courtesy of Snowflake/Handout via Portal (via Portal / Portal)
It's “a huge loss for Snowflake,” said Mike Spencer, investor relations chief at software maker Salesforce Inc. “Just look at his track record – the guy has been a great leader over the years and has taken three companies public “He's a proven winner.” Spencer added that he had heard good things about Ramaswamy.
Slootman has long been considered one of the toughest tech leaders. In a 2023 episode of the No Priors podcast, he said a CEO needs to be “insanely confrontational,” adding that leaders need to push for more urgency. In 2021, he caused a stir when he said diversity goals were secondary to merit in hiring. Slootman later apologized and said he did not mean to suggest that diversity and merit were “mutually exclusive.”
His departure from the top job at Snowflake was a “big surprise,” Evercore ISI analyst Kirk Materne said in a note, adding that Ramaswamy has “big shoes to fill.”
In a call with analysts on Wednesday, Ramaswamy said AI spending would benefit the company.
“There is no AI strategy without a data strategy, and this has opened up a huge opportunity,” he said. “We need to have a clear focus and move even faster to bring innovation to our customers and partners on the Snowflake platform. That’s what I’m going to focus on.”
In contrast to the weak forecast, Snowflake's results were stronger than expected. In the fiscal fourth quarter, product sales increased 33% to $738.1 million. Analysts on average estimated the value at $723.3 million. Profit (excluding some items) was 35 cents per share for the period ended Jan. 31. In comparison, the average forecast was 18 cents.
The “halo effect” of generative AI helped drive data modernization efforts among Snowflake customers, Guggenheim Securities analyst John DiFucci said in a note ahead of earnings.
Snowflake now has 461 customers who spent more than $1 million in the last 12 months, up from 436 in the previous quarter. Remaining performance obligations – another key measure of growth – came in at $5.2 billion, beating estimates.
Consumption trends “are improving, but not returning to pre-fiscal 2024 levels,” Chief Financial Officer Mike Scarpelli said on the call. The finance chief, who joined the company in August 2019, said he is committed to staying at Snowflake for at least another three years.
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