I’m looking to get a better view of Splunk. SPLK currently makes up 2% of my portfolio and I am trying to decide if any action is warranted in any direction (buy, sell, hold).
Splunk is going through a transition to Cloud and I have very little experience with how this might play out. For example, look at the total rev vs cloud rev results (from their press release on May 21st: https://investors.splunk.com/news-releases/news-release-deta…)
- Cloud revenue was $112 million, up 81% year-over-year.
- Total revenues were $434 million, up 2% year-over-year.
This is nice too:
- ARR was $1.775 billion, up 52% year-over-year.
The slides have some more information but is mostly beyond my ability to glance and interpret: https://investors.splunk.com/static-files/f5a765ef-82cf-4ac0…
This article offers some insight:
- the company’s migration to a cloud-centric software model is hiding the massive growth actually taking place under the surface. Splunk said its customers’ demand for cloud products was once again much greater than anticipated
- cloud representing 44% of software bookings in the quarter, up from 35% just three months
- Annual recurring revenue (ARR), which combines renewable cloud contracts and term sales and which now makes up nearly all of the revenue mix, was up 52% to $1.78 billion.
"The fast move to the cloud is creating some near-term hiccups, the biggest glare coming off the negative operating profit margin. The adjusted operating margin was negative 25.6% in Q1 and expected to be negative 10% to 15% in Q2. Ouch.
However, stopping short at operating margin doesn’t tell the whole story. Free cash flow – revenue less cash operating and capital expenses and excluding non-cash expenses – remains in positive territory and was $31.3 million in Q1. That’s a 56% year-over-year increase and good for a free cash flow profit margin of 7%. As its new cloud and term software license agreements start to kick in, that margin should only increase. The balance sheet is also in good shape, with cash and equivalents of $1.76 billion and debt (which can be converted into stock) of $1.74 billion at the end of April 2020. "
- New strategic partnership with Google Cloud
- From the company report: New and Expansion Customers Include: Allied Irish Bank (Ireland), Autodesk, Experian, Hitachi Capital (England), Kayak, Mount Sinai Health System, Santander Bank (Spain), Shopify, State of Illinois, Statkraft (Norway), Square Enix (Japan), Take-Two Interactive Software, TD Ameritrade, Transurban (Australia), Zoom
- Zoom is a new customer
- Shopify expands use
Any thoughts to share?
I just read this on Twitter FWIW.
$SPLK says its forecast for cloud bookings to be over 60% of total bookings by FY23 is starting to look “a bit low.”
If you want feedback on SPLK, I suggest you try the MF SPLK premium board https://discussion.fool.com/4056/-splunk-splk-122185.aspx?mid=34…. SPLK isn’t growing fast enough to generate much interest on this board.
Long term I’m hoping SPLK’s tranisition to the cloud will help SPLK like it did ADBE.
Long-term holder of SPLK and ADBE
It just jumped from 35% to 44% in one quarter, so I sure hope so!
I also note that to grow rev by just 2% overall, after cloud grew 81%, the rest must have been a loss. Transition I assume…
Everyone in to Splunk needs to see the last paragraph in that link! The CEO is essentially admits the company is going to have to change at a fundamental level. While I think the fact they are providing visibility into this fact bodes well for future success on this front, I also have to see this as adding significant risk. I would rather invest in a company that is already aligned with where it is heading and just executing on it a growing like crazy.
At this point I’ll probably sit on my 2% position and see how the numbers look next quarter. I considered selling but there is also a lot to like and I don’t want to psych myself out and dump a winner based on my interpretation of one comment.
Glad to see this company talked about on the board. This is a stock that I looked at over the weekend.
I believe this is the first post that I have made on the board, I’ve been a member for a long time but just found this board a few months ago…with that said, I’ve been studying the process and the companies. Please feel to provide feedback so I can continue to learn.
At first glance, it doesn’t look like a promising investment but after some review, I think it looks undervalued by the market with a PS of approx 12.
The shift to cloud and revenue accounting methods is definitely impacting the top line growth(only 2.1% this past qtr and projected to be flat in Q2. It is impacting earning as well since the company is spending to land deals that are not recognized in the period. Gross margins have been dropping and continue to. Gross margin impact should improve over time as the % of reoccurring revenue continues to grow.
ARR grew by 52% and RPO 43%. On the earnings call, the company said they expect approx 1 billion of revenue to come from RPO in the next 12 months. With ARR growing at this rate I think it is just a matter of time before that revenue hits the top line and we see the stock begin to appreciate. I think the main question that I have is - how long will it take given the current growth rates of ARR and the length of the contracts? If anyone can shed some light on this, I think it would be helpful.
Gross margins have been dropping and continue to. Gross margin impact should improve over time as the % of reoccurring revenue continues to grow.
Free cash flow per share ($0.18/share) was positive for the first time in 4 qtrs. I think this is a trend that will likely continue.
The conference call was very upbeat. Especially from the analysts covering the company.
I think this is a stock worthy of consideration. I would love to hear what others have to say, particularly as it relates to the revenue recognition and transition to the cloud.
Sorry that wasn’t the CEO, according to the image, it was the CFO and Senior Vice President, Jason E. Child. Unverified by me as well.
Yeah all good points. I noticed while the GM has pulled back almost 10% from 86.7% to 76% this Q, at the same time the Cloud GM has been going up over the last 4 Qs and has accelerated in to this one, from 54.0% to 58.9%.
"ARR growing at this rate I think it is just a matter of time before that revenue hits the top line and we see the stock begin to appreciate. "
In the Sustainable High Growth Through Transition slide they actually project ARR out over the next 2 years at a 40% CAGR and put out a number of $1B in positive operating cash flow by FY23. They are negative now. This is the stuff we love, right? I mean not only are the growing this but their average contract length for cloud is 27 months! (And has been longer at 33.6 months, so I wonder if some recent shorter contracts have actually caused this to drop, something to watch, but this is across all business, not just cloud.) So retention is going to look great for awhile…?
It just seems to me that all of this is going to be a bit hidden under their legacy business (the transition period) so I’m not sure how long it will take to make this one look shiny to the casual analyst, as you alluded to in the comment I quoted here.