Splunk stock1/15/2024 ![]() ![]() More to the point above, it's fine to have competition when Splunk also is widely considered the best-in-breed vendor for machine data analytics. We note as well that Splunk's ~$2.5 billion annual revenue scale makes it nearly three times larger than its next-closest competitor, Datadog. Splunk focuses on visualizing and analyzing machine data (information passively generated by computers, phones, and other endpoints within networks). The company's closest large/public peers are the monitoring companies like Datadog (NASDAQ: DDOG) and New Relic (NYSE: NEWR), which primarily focus on monitoring the performance and uptime of applications and infrastructure. It's also the largest company in the space. Splunk isn't without competitors, but the company's focus on machine data is unique.As data volumes continue to explode and companies continue to push the boundaries of how they integrate data into operations and decision-making, Splunk has a tremendous opportunity to derive growth from within its install base. Splunk's platform is charged on a data volumes/computing power basis. Some of the most successful software stocks are usage-based, meaning that revenue climbs proportionally to a customer's usage of the product. But as Splunk has evolved, the company's machine data capabilities are applicable across virtually any industry and across many functions. In its early days, Splunk's machine data-mining capabilities were often used for security purposes to flag and respond to anomalies within corporate systems. The use cases for Splunk are infinite.Here's a refresher on the key points that investors should be aware of: In my view, I consider the bullish case for Splunk to be very much alive. I'd argue that the ~30% decline in Splunk's shares since the start of November is quite enough of a discount to compensate for any added risk that comes with the leadership transition. On the CEO front: while I'll acknowledge that the departure of Merritt, who was a growth and sales-oriented leader who previously led field operations before being promoted to CEO in 2015, is a loss for the company, leadership shuffles tend to get resolved relatively quickly and produce a stock price bump when they do. In other words, it's primarily subscription strength, and not go-to-market weakness, that is eating into near-term revenue estimates. As we'll discuss in the next section, Splunk's cloud mix has spiked tremendously in the third quarter, leading to a cut in the near-term revenue forecast for Q4. In fact, the more customers Splunk can switch to cloud, the worse revenue will be in the short term. Even though Splunk will derive greater lifetime revenue from these new subscription contracts, near-term revenue will suffer. For investors who are unfamiliar with the mechanics of how this works, the simple way to understand this is that deals that were previously structured as one-time, upfront license fees are now being split over longer periods of time. Let's address the first issue first: recall that Splunk is heavy in the midst of a subscription transition. Graham Smith, the company's board chairman, is filling in temporarily as CEO CEO transition: Doug Merritt, who had led the company since 2015, stepped down suddenly, with no replacement named yet to date.Q4 guidance for revenue came in at $740-790 million (representing -1% to +6% y/y growth), well below Wall Street's $834 million (+12% y/y) expectations.Data by YCharts Dissecting the recent drop the bull case remains vibrantīroadly speaking, the decline in Splunk shares were driven by two factors: Recently, a new spate of weakness has kicked in: since the start of November, shares of Splunk have fallen ~30%, which matches the stock's 2021 performance - a huge underperformance versus the S&P 500's ~27% gain. With investors piling into remote-work and e-commerce stocks in 20, Splunk got left in the dust. Investors loved the big-data angle up until the pandemic began: at which point, Splunk decided to pivot its business to a subscription model, making near-term financials murky. Its technology helps businesses track and analyze machine-generated data - in other words, information generated automatically by devices on a network. Splunk, as many investors are aware, has long been one of the core big data plays in the enterprise software arena. Such is the case with Splunk ( NASDAQ: SPLK), a one-time Wall Street darling and a machine-data intelligence software company that has fallen sharply from favor over the past few months, alongside other growth stock peers. When the markets are running for the hills, intrepid and opportunistic investors should take a deeper look and see if there's a bargain to be had. David Tran/iStock Editorial via Getty Images ![]()
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