ELF and SNOW Report
e.l.f (ELF) reported another very impressive quarter yesterday afternoon (Q4 fiscal 2023), sending shares to a new all-time high over 100 today (prior high of 96.7 was on April 21) and earning the stock a number of price target increases from analysts. Quarterly revenue grew by 78% to $187.4 million, beating by 20%. Adjusted EPS of $0.42 grew 223% and crushed expectations of $0.20. Volume was up by 50%, so clearly there is a product mix and pricing benefit as revenue growth outpaced volume.
On the conference call, management talked a lot about how the company is connecting with consumers (especially younger generations) via social media and other marketing channels. The company ranks #1 among cosmetics brands among teens. Inventory was getting low near the end of the quarter, but the company is ramping up production to meet demand. For the full year management sees revenue growth of 22% to 24%, way above consensus expectations of about 12%. Adjusted EPS is seen in the $1.73 to $1.76 range, well ahead of consensus of $1.66. In short, it’s still a buy. BUY 1/2
Snowflake (SNOW) had a less positive quarterly report and the stock’s reaction is about the mirror image of ELF’s. Revenue in Q1 rose 48% to $623.6 million, beating by a modest 2.5%. Adjusted EPS of $0.15 was up 88% and beat expectations of $0.05 by a very healthy margin. Even though those results were OK, the stock isn’t reacting well because forward guidance isn’t terrific. Revenue guidance for Q2 of $620-$625 million implies growth of 33% to 34% versus 38% expected and management’s prior guide for 40% growth. For the full fiscal year (2024) revenue is seen growing by around 34% to $2.6 billion versus consensus expectations closer to 39% growth to $2.88 billion.
Snowflake has a consumption business model, so the more (less) that people use it the more (less) revenue the company generates. With businesses pulling back on their spending, management sees lighter usage in the coming quarter. That said, this dynamic isn’t expected to last forever (May was better than April). And when consumption ramps up again revenue growth will accelerate. The company’s net revenue retention was 151%, showing that existing customers continue to spend a lot more with the company than a year ago. And five new customers spent over $1 million over the last twelve months.
As with all tech companies, the topic of AI is hot and was discussed throughout the call. As a data company, Snowflake will leverage AI, but it’s a bit more complicated than putting out a quick consumer-facing product like a customer service chatbot. Users turn to Snowflake for really deep analytical work.
On that subject the CEO said, regarding AI, “…this technology is fascinating and captivating for people. But asking really hard analytical questions that take people weeks and weeks or even months to figure out, that will take some workforce software to do that in a matter of seconds to be productive that way. So we’re sort of at the top of the hype cycle. The real work really starts now.”
Stepping back, SNOW is down about 16% today, back to where it was at the beginning of May. Not a great development, but we should see the stock find support here. Let’s stick with it and see how this report is digested. If shares can stabilize it’ll buy management some time to go public with some of the new solutions they’re working on, which could easily juice the stock again. BUY
