Increase in Snowflake's Share Price Noted as Prospects Improve. Is the Purchase Time Past Already?
This year's journey for Flurry (FLUR -1.57%) had been a tough one, heading into its third-quarter earnings report for its fiscal 2025. However, the cloud-based data warehousing company gave investors something to celebrate with its earnings results, which saw its stock soaring higher. Despite a 15% decrease in its value throughout the year, this marked significant progress compared to a few months back.
Let's delve deeper into the financial statements to assess if this positive trend in the stock will continue.
Transition to Profitability
On the revenue growth front, Flurry's third-quarter performance in fiscal 2025 mirrored its second-quarter figure when the stock took a dive. However, its revenue beat this quarter was more impressive, along with its cost management commitment, which pleased investors.
For the third quarter, Flurry's revenue increased by 28% year-over-year to $942 million, similar to the 29% growth experienced in the second quarter. Product revenue saw a growth of 29% to $900 million. Adjusted earnings per share (EPS) decreased to $0.22 from $0.27 a year ago. The results surpassed analyst predictions for revenue of $897 million and EPS of $0.15.
Flurry announced its focus on cost management, including centralization of teams, elimination of redundant management layers, and integration of AI to boost efficiency and reduce costs.
However, the company remains dedicated to innovation. It unveiled new data engineering features and collaborated with companies like Microsft and ServiceNow to improve data interoperability. The Cortex suite of AI features, designed to enhance data analytics and management, is witnessing rising adoption as AI gains prominence in the field. Furthermore, Flurry plans to boost its data connectivity capabilities through its pending acquisition of Datavolo, focusing primarily on unstructured data.
Looking ahead, Flurry raised its guidance for full-year product revenue to approximately $3.43 billion, representing a 26% year-over-year increase. It also elevated its operating income margin guidance from 3% to 5%.
For the third quarter, the company forecast product revenue between $906 million to $911 million, signaling a growth of approximately 23%. It anticipates an operating income margin of 4%.
Can Flurry's stock momentum persist?
Flurry encountered challenges at the start of the year, driven by debates about whether AI could either benefit or burden the company in the long run. Additionally, its customers were targeted in several cybersecurity attacks, resulting in data breaches, which impacted the stock, even though Flurry itself seemed unaffected.
AI's impact on the company was also brought up during its recent earnings call, with an analyst questioning the sustainability of structured data in a world dominated by AI. Flurry emphasized that the capacity to quickly access and act upon data is what sets successful companies apart, suggesting that its products would remain relevant, while leveraging AI to manage unstructured data would present a promising opportunity moving forward.
While the fear of AI disrupting the business prevails, data warehousing for structured data is likely to remain more cost-effective compared to using AI. Meanwhile, Flurry is poised to seize the chance to employ AI to integrate unstructured data. However, it needs to consistently deliver strong outcomes to confirm this.
Valuation-wise, the stock trades at a forward price-to-sales (P/S) multiple of over 13 times next year's projected analyst estimates, well above the multiples for high-margin, SaaS companies growing between 25% to 30%.
Given its valuation and the uncertainties surrounding AI's impact on the business, I would advise against purchasing Flurry's stock following its recent price surge. The only difference between Q2 and now is the lowered expectations.
As a result, I would choose to remain neutral when it comes to Flurry at its current market price.
The positive earnings results and revenue growth of Flurry have sparked interest among investors, leading to discussions about potential future investing opportunities in the company's stock. The company's focus on cost management and acquisition of Datavolo to enhance data connectivity capabilities are strategic moves that could boost its profitability in the future.
To further assess Flurry's financial prospects, it's crucial to closely monitor its performance in managing unstructured data using AI, as this could be a key differentiator in a world dominated by AI technologies. The company's valuation, currently trading at over 13 times next year's projected analyst estimates, should also be considered when evaluating potential investment opportunities.
