Snowflake Inc. (SNOW) Q3 FY2026 Earnings Analysis: Revenue Miss and Weak Guidance Trigger Sharp Selloff

“Snowflake Intelligence is accelerating adoption, but near-term revenues and guidance imply a more cautious growth trajectory ahead.”

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TLDR

Snowflake's Q3 FY2026 results disappointed investors, with the stock plunging 6.7% despite posting 29% year-over-year revenue growth. The company missed revenue expectations ($1.16B actual vs. $1.18B estimated) while beating on EPS ($0.35 actual vs. $0.31 estimated). More concerning, Q4 revenue guidance of $1.195-$1.200B fell short of the $1.24B analyst estimate, and full-year product revenue guidance of $4.446B significantly missed the $4.60B consensus, signaling potential deceleration in the growth trajectory.

• Q3 Revenue: $1.21B total / $1.16B product vs. $1.18B est — MISS
• YoY Growth: 29% (total and product)
• EPS (adjusted): $0.35 vs. $0.31 est — BEAT
• GAAP Net Loss: $(293.96)M
• Non-GAAP Net Income: $131.18M (11% margin)
• Operating Margin (non-GAAP): 11%
• Q4 Revenue Guidance: $1.195-$1.200B vs. $1.24B est — SIGNIFICANT MISS
• Full-Year Product Revenue Guidance: $4.446B vs. $4.60B est — MAJOR MISS
• Implied 4Q YoY Growth: ~27%
• RPO: $7.88B, +37% YoY
• NRR: 125% (net revenue retention)
• Customers with >$1M trailing 12m product rev: 688, +29% YoY
• Forbes Global 2000 customers: 766, +4% YoY
• Q3 Asset Impairment: $108.7M (San Mateo office exit)
• Restructuring Recoveries: $11.4M

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Financial Performance

Revenue

• Q3 Revenue:
  • Total: $1.21B
  • Product: $1.16B
  • vs. $1.18B est — MISS
• Growth Metrics:
  • YoY Growth: 29% for both total and product revenue
  • QoQ growth dynamics remained positive, reflecting continued demand, but at a slower tempo as guidance suggests
• Key Revenue Drivers:
  • Product revenue remains the core consumption-based leg of the business
  • RPO: $7.88B, up 37% YoY, signaling a robust future pipeline
  • NRR: 125%, indicating existing customers expanding usage
  • Customer mix: 688 customers with trailing 12-month product rev >$1M, up 29% YoY
  • Enterprise footprint: 766 Forbes Global 2000 customers, up 4% YoY

Profitability Metrics

• Earnings:

  • Adjusted EPS: $0.35 vs. $0.31 estimate — BEAT
  • GAAP Net Loss: $(293.96)M
  • Non-GAAP Net Income: $131.18M (11% margin)

• Margins:

  • GAAP Operating Margin: -27%
  • Non-GAAP Operating Margin: 11% (improved from 6% in Q3 FY2025)

• Cash and Margins:

  • Free Cash Flow (FCF): $113.6M (9% FCF margin)
  • Adjusted Free Cash Flow (AFCF): $136.4M (11% AFCF margin)

• Cost Structure:

  • Stock-based compensation (SBC): $442.4M (driving significant GAAP losses)

• Unit Economics:

  • Non-GAAP product gross margin: 76%, underscoring strong product economics per unit

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Operational Highlights

Snowflake continued to push its AI Data Cloud strategy, with leadership emphasizing the momentum behind Snowflake Intelligence. CEO Sridhar Ramaswamy described Snowflake Intelligence as achieving “the fastest adoption ramp in Snowflake history.” The enterprise AI agent is positioned to transform customer data interactions and enable real-time decision-making across the data lifecycle.

• Customer fundamentals remained solid:
  • 125% NRR indicates customers are expanding usage within the platform
  • RPO growth 37% YoY points to a healthy pipeline, though conversion timing remains variable due to a consumption-based model
• Operational challenges surfaced:
  • $108.7M asset impairment charge tied to exiting the San Mateo office facility
  • $11.4M restructuring recoveries suggest ongoing organizational adjustments
• Competitive and macro considerations:
  • The cloud data platform market remains intensely competitive
  • Customers are prioritizing cash flow management and shorter contract durations, reflecting broader macro headwinds in enterprise software spending

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Forward Outlook

Near-Term Guidance (Q4 FY2026)

• Revenue Guidance: $1.195-$1.200B vs. $1.24B est — SIGNIFICANT MISS
• Implied YoY Growth (midpoint): ~27%
• EPS Guidance: Not explicitly provided for Q4; implied by full-year outlook
• Management commentary emphasized
  • Strategic partnerships with leading AI model providers and cloud platforms
  • Continued focus on AI-driven capabilities across the data lifecycle

Full-Year Fiscal 2026 Outlook

• Updated Revenue Target (Product): $4.446B vs. $4.60B est — MAJOR MISS
• Implied YoY Growth: ~28%
• Updated Non-GAAP EPS Target: ~$1.03-$1.05 vs. $1.19 est — MISS
• Non-GAAP Operating Margin Guidance: 9%
• Adjusted Free Cash Flow Margin Guidance: 25%
• Strategic initiatives highlighted:
  • Continued investment in Snowflake Intelligence and broader AI capabilities
  • Expansion of strategic partnerships with cloud providers and AI platforms
  • Focus on enterprise AI agent adoption and data lifecycle optimization

The guidance represents a meaningful reset of expectations, with the full-year product revenue target falling about $154M (3.3%) below consensus. This shortfall could reflect softer consumption, longer sales cycles, or greater customer optimization activity in the current environment.

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Investment Implications

For Long-Term Holders: The 6.7% stock decline underscores concerns about growth deceleration and guidance misses. Snowflake remains fundamentally sound—29% revenue growth, 125% NRR, and improving profitability—but the substantial guidance gap raises questions about the durability of growth rates. Investors should monitor whether this softness is a temporary byproduct of macro timing or a more persistent shift in demand. The AI initiatives show promise, yet execution risk remains elevated. Consider maintaining exposure but avoid adding aggressively until growth visibility stabilizes.

• Key takeaway for long-holders: Focus on unit economics and the durability of AI-driven demand as the next leg of growth unfolds.

For Growth Investors: The miss on both revenue and guidance is material. The full-year product revenue miss of roughly $154M and Q4 guidance roughly $40-45M below expectations, together with a step-down in growth from 29% to ~27%, point to tighter visibility and increased execution risk. Deployment of Snowflake Intelligence could still unlock upside, but near-term catalysts are needed to reaccelerate enthusiasm.

• Key takeaway for growth investors: Await clearer evidence of consumption stabilization and accelerating AI-driven adoption before increasing exposure.

For Value/Income Investors: Snowflake remains unprofitable on a GAAP basis with substantial SBC charges in the quarter, while non-GAAP profitability and free cash flow show improvement. The absence of a dividend and the elevated valuation implied by the guidance miss make this less attractive for traditional value or income strategies, particularly in a patchy growth environment.

• Key takeaway for value seekers: Valuation remains a hurdle given the near-term growth headwinds and lack of income distribution.

For Institutional Investors: The guidance miss and growth deceleration warrant careful reassessment of position sizing. While the 37% RPO growth provides reassurance about pipeline health, the consumption-based model introduces revenue recognition uncertainty. The 125% NRR is positive, but the modest 4% growth in Forbes Global 2000 customers hints at potential saturation in the largest enterprise segment. Institutions should evaluate whether current valuations appropriately reflect revised growth trajectories and execution risk.

• Key takeaway for institutions: Revisit scenario analyses under both steady-state and stressed demand to inform portfolio construction.

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Valuation Context and Strategic Considerations

• Snowflake’s narrative centers on a transition to AI-rich data platforms. The market is likely pricing in strong growth from Snowflake Intelligence, but the near-term results indicate a recalibration of expectations.
• A key tension exists between compelling unit economics (76% non-GAAP product gross margin, positive FCF, improving margins) and the top-line headwinds implied by the revenue miss and weak guidance.
• The firm’s consumption-based model, while offering long-term revenue upside, adds volatility to quarter-to-quarter performance and complicates precise forecasting amid macro softness.
• The strategic emphasis on AI partnerships and cloud integrations could unlock upside if adoption accelerates; however, the near-term valuation should reflect the slower growth trajectory and greater visibility risk.

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Risks and Sensitivity Analysis

• Consumption-based revenue may experience longer or more variable sales cycles in a softer macro environment.
• AI-related investments may take longer to translate into meaningful ARR expansion or cross-sell across the installed base.
• Larger enterprise deals could lag in conversion timing, affecting quarterly revenue velocity.
• Asset impairment and restructuring charges suggest ongoing optimization but also imply organizational adjustments that could carry execution risk.

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Summary

Snowflake's Q3 FY2026 results present a mixed picture. The company delivered a beat on Adjusted EPS and maintained robust operational metrics such as 125% NRR and 37% RPO growth, signaling a healthy underlying demand and efficient unit economics. Yet the revenue miss and, more importantly, the materially weaker forward guidance overshadow these positives, setting a cautious tone for the near term.

The stock’s ~6.7% decline reflects investor focus on the significance of these misses and the potential for a slower growth trajectory, particularly as guidance implies a deceleration from Q3’s high- Teens growth to mid- to high-teens at best. Snowflake’s strategic push into AI capabilities—especially Snowflake Intelligence—remains a centerpiece of its long-range plan, but execution risk remains elevated in the current environment.

Investors should exercise prudence. While Snowflake remains a leader in cloud data platforms with strong unit economics and improving profitability, the guidance miss signals headwinds that could persist. Prospective investors may wish to wait for signs of stabilized consumption trends and clearer near-term visibility before establishing new positions, while existing holders should reassess position sizes in light of the revised growth outlook.

Additional Resources

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