Geopolitical Instability Is Adding Unwanted Heat to Snowflake
On paper, cloud computing and data warehousing specialist Snowflake (NYSE:SNOW) should be rising higher thanks to the unique dynamics associated with the coronavirus pandemic. Because of the severe financial disruptions that the outbreak caused in addition to greater emphasis on internet connectivity from the broader work-from-home experiment, SNOW stock enjoys multiple fundamental tailwinds. Yet, shares have stumbled badly — partially because the Covid-19 narrative has come full circle.
On a year-to-date basis heading into the opening volley of the Apr. 12 session, SNOW stock is down over 37%. Although recently not much direct narrative-shifting news was available, the underlying company has been feeling the heat from international headlines. In particular, China’s sharp crackdown on Covid-19 cases has resulted in its government locking down Shanghai, posing major concerns for downwind institutions.
With a port city of its magnitude shut down — Shanghai represents 3.8% of China’s gross domestic product (GDP) — the impact from this decision will likely spread out to several other countries. As such, the move comes at an inopportune moment for SNOW stock.
Last month, Snowflake began its present descent into the doldrums due to a disappointing financial report for its fiscal fourth quarter (Q4). Earnings came in at a loss of 43 cents, while revenue was $383.8 million versus the $372.6 million that analysts anticipated. Though it wasn’t a bad print by itself, Q4 represented the slowest revenue growth since 2019.
Naturally, this left many folks questioning whether SNOW stock has the right stuff to keep pushing forward. Unfortunately, the Russian invasion of Ukraine followed by China’s decision to lock down its economic hub creates downward pressure. Essentially, with global recession fears rising, Snowflake’s clients could suffer, leading to even slower growth for the cloud-computing specialist.
The one piece of good news is that Shanghai is slowly lifting its restrictions. However, the full effect of the initial shutdown may not have been absorbed yet, posting lingering concerns for SNOW stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
