When all of the input datasets of a geoprocessing tool are rasters, the default analysis extent becomes the intersection of the input rasters.
When the output raster generated by the Snap Pour Point tool is used as the pour point dataset of the Watershed tool, the default extent of the output becomes the intersection of the flow direction raster and the pour point raster. Since the pour point raster will generally have the smaller of the two extents, the watershed output will match the extent of the pour point dataset.
To ensure that the Watershed tool properly delineates its output extent, set the 'Extent' and 'Snap Raster' Environment Settings to match the flow direction dataset. The following steps describe how to make these modifications:
1. Select the 'Environment Settings' button from the Watershed tool's dialog box.
2. Expand the 'General Settings' section.
3. Specify the flow direction raster for the 'Extent' and 'Snap Raster' parameters.
4. Click the 'OK' button to close out of the Environment Settings dialog box.