SNOW • 10-Q • Q4 2025 • Positive

Snowflake's Data Cloud Momentum Accelerates Despite Rising Cloud Cost Pressures

September 05, 2025 • 1 min read

TL;DR

Snowflake demonstrated resilient growth with revenue up 37% YoY to $674M, though margins faced pressure from rising infrastructure costs. Product revenue retention rate remained strong at 142%, while customer count grew 25% YoY to over 8,900 customers. The company's strategic pivot toward AI/ML workloads and new vertical-specific solutions is gaining traction but faces heightened competition. Operating leverage improved with operating margin expanding 450bps YoY, though continued investments in

Financial Performance Overview: Revenue growth of 37% YoY demonstrates sustained momentum despite macro headwinds, with product revenue reaching $640M (+36% YoY). Gross margins compressed 200bps YoY to 73% due to higher infrastructure costs, though operating leverage improved with operating margin reaching -2% (vs. -6.5% year ago). Remaining performance obligations grew 42% YoY to $3.5B, indicating strong future revenue visibility. Customer consumption patterns showed early signs of stabilization after several quarters of optimization.
Strategic Initiatives and Operational Changes: Snowflake accelerated its AI/ML strategy with the launch of Snowflake Cortex and enhanced support for large language models. The company expanded vertical solutions with new Financial Services Data Cloud capabilities and healthcare-specific offerings. Strategic partnerships with hyperscalers deepened, including expanded AWS and Azure integrations. Management indicated ~30% of workloads now involve AI/ML use cases, up from 20% last year.
Market Position and Competitive Dynamics: Market share in cloud data warehousing remained strong at ~18%, though competition intensified from both cloud providers and emerging players. Enterprise customer count ($1M+ ARR) grew 45% YoY to 425 customers. Customer acquisition costs decreased 15% YoY, suggesting improving go-to-market efficiency. The company maintained leadership in third-party evaluations while expanding its technological moat through native AI capabilities and industry-specific solutions.
Operational Efficiency and Profitability: Operating expenses grew 28% YoY, below revenue growth rate, demonstrating improving operational leverage. R&D spend increased 42% YoY to $198M as the company accelerated AI investments. Sales efficiency metrics improved with magic number reaching 1.2 vs 0.9 year ago. Infrastructure optimization initiatives delivered 8% improvement in compute efficiency, though offset by rising cloud costs.
Growth Catalysts and Material Risks: Near-term growth drivers include AI/ML workload expansion, international penetration (now 28% of revenue), and vertical-specific solutions. Key risks include customer consumption optimization, intensifying competition in the data cloud market, and potential cloud provider disintermediation. Management maintained FY24 revenue growth guidance of 34-36% while indicating potential margin pressure from AI investments.

Revenue

$674M ( YoY, QoQ) with product revenue at $640M ( YoY)

↑ +37%

Rd Spend

$198M ( YoY) representing of revenue

↑ +42%

Net Income

-$21M (improved from -$38M YoY) with operating margin at -2%

Gross Margin

(-200bps YoY) due to infrastructure cost pressure

↑ 73%

Free Cash Flow

$81M ( YoY) with margin

↑ +95%

Operating Margin

-2% (+450bps YoY) showing operational leverage improvement

Growth Indicators

$2.8B ( YoY)

↑ +38%

Customer Count ↑8,900+ (+25% YoY) with 425 >$1M customers

Retention Metrics ↑142% net revenue retention (-1600bps YoY)

Key Risks

Customer consumption optimization impacting growth rates
Cloud provider competition and potential disintermediation
Rising infrastructure costs pressuring gross margins
Execution risk in AI/ML strategy

Key Opportunities

AI/ML workload expansion representing 30% of consumption with significant headroom
International market penetration at only 28% of revenue
Vertical-specific solutions showing strong early traction
Developer ecosystem expansion through Snowpark and native apps

Bottom Line

Snowflake's Q4 results demonstrate resilient execution amid evolving market dynamics. The company's strategic pivot toward AI/ML workloads and vertical solutions positions it well for sustained growth, though rising infrastructure costs and competitive pressures require careful navigation. Improving operational leverage suggests a maturing business model, while strong enterprise customer growth and expanding RPO provide visibility into future growth. Key metrics to watch include AI workload adoption rates, gross margin trends, and competitive dynamics with cloud providers. The company's ability to balance growth investments with profitability improvement will be crucial in the coming quarters.