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Real time operational intelligence software maker Splunk Inc. (SPLK - Snapshot Report) recently entered into an agreement to acquire analytics solution provider BugSense Inc. The acquisition will enable Splunk to analyze machine data directly from devices and will help combine it with other information available from sensors and IT gear to improve operational intelligence.

BugSense was founded in 2011 and offers analytics to determine mobile app performance and collects information to troubleshoot problems. The solutions offered by BugSense support Android, iOS and Windows Phone.

Splunk is one of the pioneers in the field of mining machine data and has served customers in the IT market for quite some time now. This acquisition will help the company to focus on mobile data analysis.

This acquisition will also help Splunk to gain access to BugSense customers such as Soundcloud, Box, Trulia, Skype and Yahoo Inc. (YHOO - Analyst Report).The acquisition will therefore not only enhance Splunk’s technological expertise but will also expand its customer base. The acquisition comes at an opportune time when Splunk is set to expand its offerings and increase its business volume.

However, increasing investments for product development are expected to drag profitability in the near term. Splunk continues to explore and expand into new markets. Hence, sales & marketing expenditure is expected to increase significantly, which may hurt margins in the near term.

As IT monitoring contributes a large chunk of Splunk's revenue, so this acquisition makes sense for the company. On the other hand, substantial cash outflow that the company is expected to incur in order to finance this acquisition will also take some time to recover. Moreover, the company continues to face tough competition from established players such as IBM (IBM - Analyst Report).

Splunk Inc. has a Zacks Rank #3 (Hold).

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