Shares of cloud data warehouse giant Snowflake Inc. suffered heavy losses in extended trading today, even though the company reported solid results and a second-quarter outlook that beat expectations.

The company’s shares fell more than 7% in after-hours trading as analysts said likely shareholders were concerned about the possibility of a decline in sales in the second half of the year, which could be implied by the forecast.

Snowflake reported second-quarter earnings before certain costs such as stock compensation of 18 cents per share, while revenue rose 29% to $868 million. The numbers were better than expected, as analysts had forecast earnings of just 16 cents on revenue of $852 million.

The company also reported that it had product revenue of $829 million, above the consensus estimate of $814 million. It ended the quarter with 510 customers and more than $1 billion in product revenue over the last twelve months.

Overall, Snowflake reported a net loss of $317 million for the quarter, compared to $227 million in the same period last year.

Snowflake CEO Sridhar Ramaswamy (pictured) was full of enthusiasm and spoke of “another strong quarter” in which the company exceeded the upper limit of its own product sales forecast.

“The quarter was marked by innovation and product delivery, as well as great traction in the early stages of our new AI products,” Ramaswamy said. “With the combination of our platform, the network effect of collaboration and our AI innovations, we have a tremendous opportunity ahead of us to deliver even more value to our customers.”

Snowflake’s cloud data warehouse offerings have become more relevant to enterprises due to the ongoing shift from traditional on-premises servers to the cloud, and have seen a further boost in recent months due to growing demand for data to support artificial intelligence workloads.

The company has responded by introducing a number of AI-related features to its data platform, which has led to increased demand for its services. In addition, the company has entered the large-scale language model space with Snowflake Arctic, an open-source alternative to proprietary models such as OpenAI’s GPT-4o.

Snowflake said it ended the quarter with $5.2 billion in remaining performance obligations, up 48% from a year ago. That’s an encouraging sign for investors. RPO is generally used as a benchmark to understand future revenue, as it indicates how much the company expects to earn from its existing contracts with customers. It includes revenue that has been invoiced but not yet paid, as well as future amounts that will be invoiced for goods and services that have not yet been delivered.

For the third quarter, Snowflake expects product sales in the range of $850 million to $855 million. The midpoint of this range is above Wall Street’s target of $851 million.

In addition, Snowflake raised its full-year product revenue forecast, now expecting a midpoint of $3.356 billion, up from a previous forecast of $3.3 billion.

The after-hours decline may have come as a surprise given the strong results and outlook, but analysts pointed to a number of issues that investors may want to quibble over.

Evercore ISI analyst Kirk Materne said in a note to clients that while the guidance was improved, it still indicates a “significant slowdown” in product sales growth from the first half of the year. He also pointed to the company’s deferred revenue, which came in slightly lower than expected.

“This could contribute to some of the equity overhang in the aftermarket,” he said.

Holger Mueller of Constellation Research Inc. told SiliconANGLE that some investors may also be concerned about the huge amounts of money Snowflake has been squandering. The company spent more than $1 billion of its reserves in the first six months of the year. In addition, Mueller said, there may be doubts about whether the company will meet its net income targets.

“Snowflake had a very good quarter on the revenue side, growing 30%, but net loss increased more than 40%,” Mueller said. “So there will have to be some give in the second half of the year, because Sridhar Ramaswamy and his team have said they want to end the full year with a 3% increase in operating income. The other question is when Snowflake will finally deliver a profit for the year. This year, that’s unlikely.”

Meanwhile, Gil Luria, an analyst at DA Davidson, told Reuters that the company did not tie its increased revenue forecast to an increase in its margin forecast. In a conference call, Snowflake executives said the margin forecast remained unchanged because the company is still waiting to deploy new graphics processors in its data centers.

Before today’s price moves, Snowflake’s share price had fallen 11 percent over the past 12 months, while the technology-heavy Nasdaq index had gained 33 percent.

Photo: SiliconANGLE