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Cloud Stocks: Splunk Should Open up About its PaaS Metrics

Posted on Tuesday, Mar 10th 2020

According to a Research and Markets report, the global Big Data-as-a-Service market is estimated to grow at 25% CAGR to $46.82 billion by 2025 from $13.12 billion in 2019. Big data player Splunk (NASDAQ: SPLK) recently announced its fourth quarter results that delivered a mixed reaction.

Splunk’s Financials

Revenues for the fourth quarter grew 27% over the year to $791 million, ahead of the market’s expectations of $783.2 million. Net loss was $22.7 million, compared with an income of $2.1 million a year ago. On an adjusted basis, EPS was $0.96 per share, which was in line with the market’s expectations, and was better than previous year’s EPS of $0.93.

By segment, license revenues grew 26% to $517.5 million. Maintenance and service revenues grew 30% to $273.6 million. Overall software revenues grew 33% over the year to $617 million.

Among other metrics, Cloud revenues grew 86% to $99 million on the back of increased utilization of cloud-based services. It added 450 new customers for the quarter and now has over 220 orders of average contract value of more than $1 million. It ended the quarter with annual recurring revenue growing 54% to $1.68 billion.

Splunk ended the year with revenues growing 31% over the year to $2.36 billion. Adjusted net income was $1.88 per share.

For the first quarter, Splunk expects revenues of $450 million and revenue of $2.6 billion for 2020. The market was looking for revenues of $526 million for the quarter and $2.88 billion for the year.

Splunk’s Platform Focus

Splunk has been focused on its platform and cloud capabilities. It runs a focused developer program that allows third party developers to build apps for its platform. Developers can build apps and integrations that bring new kinds of data into the Splunk platform to offer data-based insights helping users to investigate, monitor, analyze and make better informed decisions. Developers have the option to build their apps that can provide services to Splunk Enterprise that has over 15,000 customers, or they can access Splunk Cloud Services via REST APIs and SDKs from their custom-built cloud-native app. Besides apps, Splunk also allows developers to build add-ons that are smaller reusable components for providing specific capabilities to extend and customize Splunk.

Splunk Enterprise provides the ability to add apps to the Splunk platform and does away with the need for any app hosting by the developer. Apps run in customer’s Splunk Cloud instance or on-premise in Splunk Enterprise. Splunk currently offers over 2000 apps on its marketplace called Splunkbase. Splunk Cloud Services is for modern cloud app development that provides access to its cloud-native service and provides the ability to host the app anywhere.

Splunk is very supportive of its developer community as it realizes how the apps and add-ons help extend the power of its own platform. It operates several developer-focused content and support libraries. It also provides them with access to specialized tools such as Splunk Investigate that provide app-dev teams with a collaborative interface to investigate multiple data sources with reliable scalability and zero administration. Splunk does not share detailed statistics about the developer community though. I think that given the potential of a PaaS strategy, Splunk should start becoming more transparent on its progress on the front.

Splunk’s Cloud Transition

During the previous year, Splunk has transitioned its business model and product strategy by introducing new and enhanced pricing models as part of its cloud-first approach. It expects its cloud products to represent more than 60% of its total software business in the next few years. Splunk’s outlook for the current year is significantly lower than the market’s expectations. It attributed the miss to its shift to cloud-based services where revenue recognition is delayed in comparison to software contracts. Splunk believes that the transformation will pay off in the future, and the missed outlook is a short-term issue.

Its stock is currently trading at $128.24 with a market capitalization of $20 billion. It had climbed to a 52-week high of $176.31 earlier last month. The stock has recovered from the 52-week low of $107.16 in June last year.

Photo Credit: Ted Striker/Flickr.com

This segment is a part in the series : Cloud Stocks


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