06:40 AM EDT, 08/22/2024 (MT Newswires) -- Snowflake (SNOW) shares dropped early Thursday as the company issued a downbeat fiscal third-quarter product revenue outlook despite raising its full-year view for the key metric and beating Wall Street estimates for the second quarter.

Product revenue, which comprises the majority of the company's overall revenue, is anticipated to be in a range of $850 million to $855 million for the fiscal third quarter, the cloud-based data platform company said late Wednesday. The consensus on Visible Alpha is for $855.4 million. The stock fell 9.4% in recent premarket activity.

"We forecast product revenue based on observed behavior," Chief Financial Officer Michael Scarpelli said during an earnings call, according to a Capital IQ transcript. "Our forecast does include revenue headwinds associated with performance improvements."

The company reported adjusted earnings of $0.18 per share for the three-month period ended July 31, down from $0.22 the year before, but ahead of the Capital IQ-polled consensus of $0.16. Overall revenue climbed 29% year over year to $868.8 million, beating the Street's view for $850.7 million. Product revenue advanced 30% to $829.3 million.

Financial services and technology verticals drove growth in the second quarter, while the company continued to see signs of a stable optimization environment, Scarpelli told analysts. The net revenue retention rate was 127%, while remaining performance obligations, or RPO, jumped 48% year over year to $5.2 billion, according to the firm.

For fiscal 2025, Snowflake now expects product revenue to come in at about $3.36 billion, in line with the consensus estimate on Visible Alpha, up from its prior outlook of $3.3 billion. The company reiterated its adjusted product gross profit margin forecast of 75%.

"(Snowflake) delivered solid results and an increase to guidance, though we believe investors were looking for stronger incremental product revenue after their strong first quarter," Truist Securities said in an emailed client note. The brokerage still views Snowflake as one of the key beneficiaries of the "rush" to artificial intelligence and maintained its buy rating on the firm's stock.

Price: 121.78, Change: -13.28, Percent Change: -9.83