Cloud Stocks: Splunk Sees Strong Cloud Momentum

Big data platform Splunk (NASDAQ: SPLK) recently reported a strong quarter. The highlights of the quarter were the strong momentum in cloud revenue and its $1.05 billion acquisition of cloud monitoring company SignalFx.

Splunk’s Financials

Q2 revenues grew 33% over the year to $517 million, significantly ahead of the market’s expectations of $488.4 million. Net loss was $100.8 million and non-GAAP EPS was $0.30, beating analyst estimate of $0.12 per share.

By segment, its License revenue increased 39% to $279.3 million, while Maintenance and Services revenue grew 26% to $237.3 million. Within the segment, Software revenues, which includes cloud and license revenues, grew 46% to $350 million. Cloud revenues grew 80% to $70.5 million.

During the quarter, Splunk added nearly 500 new enterprise customers including ABB (Switzerland), Conde Nast, Cox Automotive, Denny’s, DoorDash, Duke University, Gatwick Airport (England), Harvard Business School, Jump Operations, NATO (Belgium), Nubank (Brazil), The Pennsylvania State University, United States Postal Service, Verizon Media Group, and Zoom.

For the third quarter, Splunk expects revenues of $600 million, compared with the market’s estimate of $477 million. It expects to end FY 2020 with revenues of $2.3 billion, up from the previous guidance of $2,25 billion. Analysts expect revenue of $2.26 billion for the year.

Splunk has been transitioning its business to a subscription-based renewable software model. By the end of FY20, Splunk expects about 99% of product sales will be recurring renewable subscriptions. This has pushed FY20 free cash flow target from a positive $250 million to negative $300 million. I think it is a short-term challenge for the company, but in the longer term, the transition will stand Splunk in good stead.

Splunk’s SignalFx Acquisition

During the earnings call, Splunk announced that it was acquiring cloud monitoring company SignalFx for $1.05 billion. The acquisition is expected to close in the second half of the fiscal year.

Founded in 2013, SignalFx raised $178.5 million from investors including Tiger Global Management, Andreessen Horowitz, CRV, and General Catalyst. It last raised $75 million in June 2019 at a valuation of $500 million. Its estimated annual revenue is $25 million.

San Mateo, California-based SignlaFx is a SaaS-based monitoring and analytics platform for infrastructure, microservices, and applications and is able to alert users of anomalies in data in two to five seconds. The combination of the Splunk and SignalFx platforms will challenge leaders in the application performance monitoring market such as Cisco AppDynamics and Dynatrace. It is expected to allow developers and IT departments to monitor and absorb data in real-time for both on-premise or cloud infrastructure.

Its stock is trading at $111.82 with a market capitalization of $16.8 billion. It had climbed to a 52-week high of $143.70 in February and has recovered from the 52-week low of $83.69 in October last year.

Photo Credit: Ted Striker/Flickr.com

This segment is a part in the series : Cloud Stocks