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“Splish! Splash! I was taking a bath ‘long about a Saturday night.” That was Bobby Darin, and the year was 1958. Today, the “Splish! Splash!” you are hearing is the splash being made by Splunk’s share price (NASDAQ:SPLK) after the company issued it second quarter financial statement. Splunk shares are trading at 52.64, 16.23% higher than yesterday’s close.
The First Think You Thunk
I know what you thunk when you read Splunk. You thunk, “What in the world is Splunk?”
Splunk is an analytics provider, founded in 2003 and focused on the Internet of Things, a terminology unlikely clearly understood by most people over the age of 50, much the same as people under the age of 50 don’t know who Bobby Darin was. Splunk defines itself as “disruptive,” a buzz word for emerging startups that operate outside of the realm of traditional thinking and methodology. Splunk “turns machine data into valuable insights no matter what business you’re in.” They call it operational intelligence. “Machine data is one of the fastest growing and most pervasive segments of “big data” generated by websites, applications, servers, networks, mobile devices and the like that organizations rely on every day.”
What Made the Splash?
Chairman and CEO Godfrey Sullivan described it like this: “We are pleased to deliver another strong quarter and thank our customers and partners for their continued support. We continue to invest heavily in product innovation, including the industry’s first 100 percent uptime SLA for Splunk Cloud, we shipped a brand new product – the Splunk App for Stream for wire data – and delivered a new release of our App for Enterprise Security.”
Substantially increasing its customer base was certainly a big plus, especially when clients added included such high-profile institutions such as Dell, Bass Pro, Dropbox, NASDAQ, the U.S. Department of Health and Human Services, and the University of Washington.
Add to that these impressive results that beat analyst estimates soundly.
- 44% increase in licensing revenues to $62.1 million
- 67% increase in maintenance and services to $39.50 million
- 52% increase in total revenues to $101.5 million
This is the second consecutive impressive earnings report, and Splunk is adjusting its revenue expectations upward for the balance of the year from the $402 to $410 million range to between $423 and $428 million. As one pundit put it, “Nearly any way you slice it, this report was a win for Splunk.”
Some Thunk Splunk Stunk
I can certainly understand. I often take a contrarian position when looking at a snapshot in time. But, while the increase in share price could be perceived as a snapshot, the performance for the entire quarter needs to be viewed from a broader perspective.
To be fair, the concerns of naysayers go to the operating losses being generated against the top line successes. Those are legitimate concerns. However, Splunk is a leading entity in this space and it is, therefore, encumbered by inordinately high R&D expenses as it blazes a trail for the rest to follow. These concerns might be allayed a bit by Splunk’s 75.45% net working capital ratio. It ought to be able to bear up well during this stage of development.
Some rate Splunk as a Buy. Others rate it as a Sell. It depends on your market perspective. In the short term, at least the next three to six months, I expect the share price to continue to rise modestly and to continue to do so as long as most of the news is good news.
