Snowflake CEO: Providing cautious revenue projections is more challenging, so we prefer to offer conservative guidance.

• CEO Frank Slootman of Snowflake revealed on Wednesday that the company prefers to provide conservative guidance due to its "consumption model" for revenue, according to CNBC's Jim Cramer.
• The data-analytics firm's shares plummeted following the release of its full-year results and the presentation of its fiscal 2023 projections.

On Wednesday, CEO Frank Slootman informed CNBC's Jim Cramer that the company adopts a conservative approach to revenue recognition, which adds uncertainty when preparing forecasts due to the significant impact of this recognition method.

The data-analytics firm reported its fourth-quarter and fiscal 2022 results, after which Slootman made comments in a "Mad Money" interview. The stock was down roughly 22% in extended trading, falling 30% at one point before recovering somewhat.

The company's revenue growth rate has slowed down to its lowest level since 2019, and its guidance for fiscal 2023 is also lower than expected. Snowflake predicts that its product revenue will increase by 65% to 67% in the upcoming fiscal year, which is slightly below the 66% growth rate forecasted by analysts, according to FactSet. This represents a significant decrease from previous years.

As a data management company, we follow a data-driven approach, avoiding impulsive decisions and instead taking a conservative stance to ensure success.

Snowflake's product revenue, which accounts for most of its overall sales, increased by nearly 106% in fiscal 2022, according to its earnings presentation on Wednesday.

Snowflake exceeded its fiscal 2022 product revenue forecast, which was announced in a March 3, 2021 quarterly report, with projected product revenue growth of 82% on a year-over-year basis.

‘Consumption model’

Slootman stated that Snowflake utilizes a "consumption model" for booking revenue, in contrast to the typical subscription model commonly used in the software industry. This may require investors to comprehend the implications on the company's results and forecasting capabilities across multiple quarters, Slootman added.

Our revenue reporting is based on the actual consumption of our customers during the quarter. Despite having a large number of new customers with no prior history, we must accurately forecast their future behavior and growth.

Snowflake's cloud-based software enables customers to search and analyze vast amounts of data, with the capacity to expand as needed. Snowflake had 5,944 customers at the end of its fiscal 2022, representing a 44% increase from the previous year.

"Unlike a software-as-a-service model where there are contracts, a consumption model has a different pace. People will eventually understand and become accustomed to it, I hope," said Slootman, a tech industry veteran who previously led ServiceNow.

In September 2020, he played a key role in Snowflake's public debut, which was then the largest software IPO in history.

Snowflake's stock has decreased by approximately 22% year to date, excluding Wednesday's after-hours trading. This decline is due to Wall Street's shift towards defensive investments and away from unprofitable growth-oriented companies like Snowflake.

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