- Snowflake is feeling the squeeze of cloud spend optimization as customers pared back data usage during the three-month period ending April 30, the cloud-based data services company reported Wednesday.
- “We are operating in an unsettled demand environment, and we see this reflected in consumption patterns across the board,” Frank Slootman, Snowflake’s chairman and CEO, said Wednesday, during the company’s FY2024 Q1 earnings call.
- Snowflake’s fate is tied to the fortunes of the hyperscalers, particularly AWS, which has seen revenue growth rates flatten and contract over the last year. “Amazon is such a large percentage of our overall deployments that they are a proxy,” Slootman said. “What they experience, we experience.”
While the data cloud company’s software are platform agnostic, its data storage and analytics solutions depend on cloud, a category of enterprise IT spend that came under greater scrutiny as rising inflation and interest rate hikes shook confidence in the economy.
In March, Snowflake extended an existing multiyear partnership with AWS around industry cloud verticals. At the time, the company reported that 84% of its customers had AWS deployments.
AWS, the cloud market leader, has repeatedly pledged to help its customers control cost through optimizing current workloads.
Consumption slowed considerably for Snowflake in April, CFO Michael Scarpelli said during the earnings call. “Some organizations have reevaluated their data retention policies to delete stale and less valuable data,” he said. “This lowers their storage bill and reduces compute cost.”
Customers have also been hesitant to sign large long-term deals, according to Scarpelli.
Much like AWS, Snowflake is taking steps to help customers optimize spending, a strategy aimed at improving profit margins.
To help control cost, Snowflake has migrated all of its AWS workloads to more efficient Graviton2 processors and upgraded software. The company is also working with customers to improve data storage retention practices, according to Scarpelli.
Snowflake has also implemented internal cost-control measures in response to declining revenue growth.
The company reported $623.6 million in net revenue for FY2024 Q1, a 48% year-over-year increase, down from 85% growth during the same period last year. Snowflake posted an operating income loss of $273.2 million, up from $188.8 million operating income loss in the first quarter of FY 2023.
“More favorable pricing with our cloud service providers, product improvements, scale in our public cloud data centers and continued growth in large customer accounts will contribute to year-over-year gross margin improvements,” Scarpelli said.
The emergence of generative AI tools may counterbalance the optimization trend.
Last year, Snowflake acquired Applica, an LLM and automation software company. The company's tools are now in private preview on the company’s platform, Slootman said during the earnings call.
Running generative AI on top of Salesforce data in Snowflake is a use case the company is already testing internally, Slootman said. Those tools may be deployed on the platform in the second half of the year, he said.
“I think we're still sort of in the fun-and-games state of the development of this technology,” Slootman said. “We're sort of at the top of the hype cycle.”