Snowflake Inc. gave a sales outlook for the current quarter that fell short of expectations, suggesting that many companies are trimming their spending for cloud software amid uncertain economic conditions. The shares declined 14% in premarket trading.
Product revenue will increase about 34% to as much as $625 million in the period ending in July, the company said Wednesday in a statement. Analysts, on average, estimated $646.3 million, according to data compiled by Bloomberg. Product sales make up the majority of Snowflake’s total revenue and are watched closely by investors.
Snowflake’s software helps business organize data in the cloud. The company is known for its consumption pricing model, which charges customers based on how much they use its products. Analysts had feared that a slowdown in demand for cloud services would dent Snowflake’s pay-as-you-go model.
Shares dropped in premarket trading before New York exchanges opened on Thursday, on track for their biggest intraday decline since March, after closing at $177.14. The stock had rallied 24% in the last month, benefiting from positive results by cloud infrastructure providers Microsoft Corp. and Alphabet Inc.
Snowflake also cut its outlook for the fiscal year, saying product revenue will be about $2.6 billion. In March, the company predicted annual product sales of $2.7 billion.
The forecast reduction is tied to the broader slowdown in spending for information technology seen across the economy, said Mandeep Singh, an analyst at Bloomberg Intelligence.
The latest outlook, which is the second time Snowflake has reduced full-year guidance, may hurt management’s credibility with investors and fuel questions about revenue predictability under the consumption pricing model, wrote Raimo Lenschow, an analyst at Barclays.
Fiscal first-quarter product revenue increased 50% to $590.1 million. Analysts, on average, projected $571.9 million. Profit, excluding some items, was 15 cents a share in the period ended April 30, compared with an average estimate of 5 cents.
The company said in a presentation that it had 8,167 customers at the end of the quarter. Of those, 373 were large clients who generated trailing 12-month product revenue of more than $1 million, an 80% increase compared with the period a year earlier.
(Updates with premarket trading in first paragraph.)