Splunk earnings

Splunk just announced Apr quarter earnings which I thought was very good. Here’s a tiny excerpt from Morningside’s cautious take:

Splunk’s first-quarter results were modestly ahead of our expectations, as the firm continues to see strong growth in cloud-based sales. The company is making progress on improving its operating leverage via sales and marketing,though the firm still has material ground to cover to reach our long-term margin targets. We continue to think Splunk’s versatile analytics platform will drive outsize growth, but we still see challenges in the business model that prevent us from awarding the firm an economic moat. We are maintaining our $67 fair value estimate, and shares remain near our fair value despite a 5% sell-off on the heels of these results.

First-quarter sales rose 30% versus the prior-year period to $242 million, ahead of our forecast. Maintenance and services revenue (which include cloud contracts) were the primary growth driver, rising 48% year over year to $125 million, eclipsing the revenue contribution from licenses. We generally think Splunk has handled this transition well, and the company is tracking toward 75% of its revenue mix coming from subscriptions by 2020. Still, Splunk’s operating margin profile has likely suffered to a greater degree because of this transition, a trend realized in continued elevated sales and marketing spending.

5 Likes

First-quarter sales rose 30% versus the prior-year period to $242 million, ahead of our forecast. Maintenance and services revenue (which include cloud contracts) were the primary growth driver, rising 48% year over year to $125 million, eclipsing the revenue contribution from licenses. We generally think Splunk has handled this transition well, and the company is tracking toward 75% of its revenue mix coming from subscriptions by 2020. Still, Splunk’s operating margin profile has likely suffered to a greater degree because of this transition, a trend realized in continued elevated sales and marketing spending.

I listened to the CC yesterday. Couldn’t believe how analysts harped on the 30%. What’s wrong? Is the transition working? Um…did you guys not see the 48% in recurring revenue?? And that it was > 50% of total revenue? I’ll take that every day and twice on Thursdays.

Bear
long(er) SPLK

7 Likes

I added on today’s price dip.

I exited UBNT a couple days ago and today opened a position with SPLK.

As always, time will tell.

Frank

I listened to the CC yesterday. Couldn’t believe how analysts harped on the 30%. What’s wrong? Is the transition working? Um…did you guys not see the 48% in recurring revenue?? And that it was > 50% of total revenue? I’ll take that every day and twice on Thursdays. – Bear

PaulWBryant added to your Favorite Fools list.

Darn… I thought I had done that a long time ago…

Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.

We are buying our first round of Splunk at work for a gov project. It is very expensive, but very valuable. We are using it in a cyber security setting where it will help consolidate disperate data from logs and other sources into a useful dashboard. They gave us a two hour intro class on programming it and it was not bad. Still need to be geeking, but it is not direct database commands. Lots of nice widgets to create graphs and trends and lots of prebuilt widgets for major COTS devices (e.g Cisco, HP, etc)

They charge by that amount of data you “suck up”, so as your system grows, your data (logs) grow and you have to spend more, but by that time you are hooked. If done right, this will be a valuable labor saving tool for us. If done wrong, it will be a very expensive boat anchor.

Pete

21 Likes

Splunk turned in a great quarter and seem to be making progress overall on profitability - although Q1 is the seasonal low for EPS. I usually find these kinds of buying opportunities the most satisfying, i.e. when you have a beat, beat and raise, de-risking matters for another 3 months and confirming an investment thesis - a total gift horse! Usually the plunge gets reversed within days after analysts reconsider. It doesn’t happen that often but it is usually a great opportunity when it happens. It happened for me in YY this quarter and Ali Baba a few quarters ago.

Emerging margins and profitability of SPLUNK is encouraging together with bookings and deferred revenues although growth is tailing and SBC is high. I’m also not totally convinced about the Moat. They are the next big thing but they could be superseded by the next next big thing very easily. Another one for the hold on tightly let go lightly touch.

A

5 Likes

Hey Ant,

Your enthusiasm around Splunk and the recent drop is making me more interested. More research to do on my end. And more research to do on this Big Data theme in general. Quite a few names being bandied about here such as Splunk, Talend, Mulesoft and Hortonworks to name a few. I’m only invested in the last (HDP).

Cloudera is another and is Hortonwork’s only other public competitor. Their valuation keeps growing. That seems to be a good sign for HDP near term anyway.

Always more research to do.
By the way, I feel the same way about UBNT right now as you do Splunk. I don’t think the market’s reaction is warranted.

My track record on “thinking the market is wrong” is still spotty though. But each situation is different. We shall see.

AJ

1 Like

And more research to do on this Big Data theme in general. Quite a few names being bandied about here such as Splunk, Talend, Mulesoft and Hortonworks to name a few. I’m only invested in the last (HDP).

The future is all about the data for sure. HDP I can’t get excited about in terms of profitability margin/operating leverage or lack of, long term revenues nor sustainable moat. Talend I do like as well as Splunk (although it took me years to warm up to them) - I just don’t know enough about Mulesoft. With all of these it does seem like there’s a risk of them being the temporary next big thing about to be eliminated by tomorrow’s next big thing, (e.g. Splunk seemed to steal Tableau’s thunder which stole someone else’s thunder etc).

I guess the sure fire Big Data beneficiaries are going to be: Microsoft’s Azure, Amazon’s AWS, Ali Baba’s Alibaba cloud and data center REITs. If a memory player like Micron or Pure Storage etc can break away from commoditisation then they could be candidates. I did a review of Big Data in one of my mega themes posts once in case it helps get you started.
http://discussion.fool.com/anirban-and-saul-this-might-help-you-…
Essentially - Big Data whilst a part and parcel of every part of our lives in the future, is intrinsically linked to cloud access and storage on the one hand and end points on the other (IoT etc) with security of everything in between and AI etc to derive automated utility from the data.

Ant

3 Likes