Key Points
-
Snowflake stock dropped after its fiscal third-quarter report despite 29% revenue growth.
-
Revenue growth decelerated in fiscal Q3 — and guidance calls for a further slowdown.
-
Even after the pullback, it’s difficult to make sense of the stock’s valuation.
Snowflake (NYSE: SNOW) shares slid in after-hours trading on Wednesday, Dec. 3, when the data cloud platform specialist reported fiscal third-quarter results.
Revenue growth remained impressive, and management leaned heavily on artificial intelligence (AI) themes during the earnings call. The tech company, which provides data warehousing and analytics tools that run across major public clouds, continues to add large customers and maintain a robust net revenue retention rate. But this wasn’t enough to excite Wall Street in light of a valuation that already prices in near-flawless execution.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now, when you join Stock Advisor. See the stocks »
Does the market’s decision to punish the stock make sense? Or is this a buying opportunity?
Here are three reasons I personally don’t think Snowflake stock is worth buying on this dip.
Image source: Getty Images.
1. Persistent net losses
Snowflake’s fiscal 2026 third-quarter revenue rose 29% year over year to $1.21 billion. Yet the company still reported a generally accepted accounting principles (GAAP) net loss of $294 million, only slightly better than the approximately $324 million loss it posted in the third quarter of fiscal 2025.
The cumulative picture is even starker. Over the first nine months of fiscal 2026, Snowflake’s GAAP net loss reached about $1.02 billion, compared with roughly $958 million in the same period a year earlier. That kind of deficit is hard to square with a business that already produces more than $1 billion in quarterly revenue and has a market capitalization of about $85 billion.
A major driver of Snowflake’s expenses is stock-based compensation, which came in at $442 million in the quarter, up from roughly $363 million in the year-ago period, which works out to well over one-third of revenue. On a GAAP basis, operating margin was -27% in the third quarter, while the non-GAAP operating margin, which strips out stock-based compensation and certain other items, was 11%.
Snowflake does produce positive free cash flow, and management is targeting an impressive adjusted free cash flow margin of 25% for fiscal 2026. Even so, the persistent GAAP losses show how dependent the company remains on stock-based compensation to support its business.
2. Growth is decelerating
Snowflake’s growth profile remains enviable, yet the trend is clearly slowing. Product revenue rose 29% year over year to $1.16 billion in fiscal Q3 — down from 32% growth in fiscal Q2.
Management’s guidance calls for fiscal fourth-quarter product revenue (the bulk of Snowflake’s total revenue) between $1.195 billion and $1.2 billion, which implies growth of about 27% from the prior-year period.
The business is still expanding rapidly. But decelerating growth at a time when Snowflake is still reporting losses, yet still commands a significant market capitalization, isn’t a good combination.
3. Shares look too expensive
Probably the main issue with Snowflake (and the main reason I’m not willing to buy shares today) is valuation. With shares trading at about 20 times sales even as the business continues to report big losses, the market has already priced in more strong revenue growth and big profits down the road.
In other words, even after the post-earnings drop, Snowflake’s valuation leaves limited room for any potential missteps like slower-than-expected adoption of its AI offerings or a meaningful deceleration in top-line growth.
Overall, I think Snowflake’s business is great. But the stock is just too pricey.
If Snowflake’s business can demonstrate sufficient scale to swing to GAAP profitability at some point in the next few quarters, and if the stock is still trading at its current level or lower, I might reconsider and turn bullish.
Should you invest $1,000 in Snowflake right now?
Before you buy stock in Snowflake, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Snowflake wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $560,649!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,100,862!*
Now, it’s worth noting Stock Advisor’s total average return is 998% — a market-crushing outperformance compared to 194% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.
*Stock Advisor returns as of December 1, 2025
Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Snowflake. The Motley Fool has a disclosure policy.