Shares of data company Snowflake (SNOW 32.46%) skyrocketed on Thursday after investors were pleasantly surprised with the financial results it reported for its fiscal third quarter of 2025. As of 12:40 p.m. ET, Snowflake stock was up 34%.
Snowflake’s adoption is growing
I believe that investors are looking at Snowflake’s business trends more than its headline numbers today. The company had some big customer wins during Q3, which was an encouraging sign. Like most enterprise software companies, its customers sign longer-term contracts, and this is recorded as remaining performance obligations.
And in Q3, Snowflake’s customer growth resulted in big gains in remaining performance obligations. These jumped 10% quarter over quarter to $5.7 billion. For perspective, there was only a 4% jump between the second and third quarters of its fiscal 2024.
Of course, Snowflake’s headline numbers were important too. Management had only guided for Q3 product revenue of $855 million at most, whereas it ended up generating $900 million. And it had a Q3 adjusted operating income margin of 6%, whereas it only expected a 3% margin.
Those numbers were good also, but I think investors were more excited about the customer wins, because that’s something that will continue to provide strong financial results in coming years.
Snowflake’s outlook is improving
With upbeat Q3 results, Snowflake’s management raised its outlook for the remainder of the fiscal year. As a whole, the company believes it’s on pace to grow product revenue by 29% from its fiscal 2024, which is an increase from its previous guidance of 26% growth. Guidance for profit margins is likewise up.
In recent years, enterprise customers had been reluctant to spend money. But it seems like the outlook is now improving for Snowflake, and investors are understandably excited about that.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Snowflake. The Motley Fool has a disclosure policy.
