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Bear of the Day: Splunk Inc. (SPLK)

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Splunk (SPLK - Free Report) is a data analytics software company that offered disappointing guidance on March 4. Shares of Splunk have now fallen over 17% since then and it might be time to stay away from SPLK.

What the Splunk…

Splunk is a data-analytics-software firm that has grown quickly in the big-data age. The firm was founded in 2004 and its name is a play on the word spelunking, which is most reliably defined as the recreational exploration of caves—in this case big-data. SPLK’s technology is designed to help firms “investigate, monitor, analyze and act on data at any scale, from any source over any time period.”

The company has seen its revenue skyrocket from $451 million in 2015 all the way to $2.36 billion in fiscal 2020—its most recently reported period. Splunk’s expansion comes as part of the ongoing big data revolution and it aims to continue to grow with its Data-to-Everything Platform.

The San Francisco-based firm’s 2020 revenue jumped 31% to reach $2.36 billion and its adjusted Q4 earnings matched our estimate, even though it posted a GAAP loss.

Investors should also note that the company has completed its transition to a cloud-based business model. “Our shift to a renewable model is 99% complete as customers are now predominantly opting for term and cloud contracts,” CEO Doug Merritt said on the firm’s Q4 conference call.

“The flexibility and predictability of our new Data-to-Everything pricing options have made it easier to do business with us and for customers bring data to every question, decision and action. And now we're focusing squarely on cloud as a driver of our next phase of growth.”






Splunk noted on its recent earnings call that 35% of its software business came from the cloud in 2020. SPLK executives now expect its cloud unit to account for over 60% of total software bookings in fiscal 2023.

Looking ahead, Splunk said it expects its fiscal first quarter 2021 revenue to come in at approximately $450 million. The company also said that its “non-GAAP operating margin is expected to be approximately negative 25%.”

Meanwhile, our current Zacks estimate calls for Splunk’s adjusted Q1 earnings to tumble from +$0.02 in the year-ago period to a loss of -$0.16 per share.    

On top of this, its full-year sales guidance came in below analyst estimates. The company’s fiscal 2021 revenue is projected to climb 9.4% to $2.58 billion. Meanwhile, its adjusted 2020 earnings are projected to dip 1.1% this year to $1.86 per share.





Bottom Line

The nearby chart shows just how much Splunk’s earnings estimates have fallen since it reported its results last week. For instance, its Q1 estimates tumbled from -$0.04 to -$0.16 a share and its fiscal 2020 figure dropped from +$2.30 to $1.86 a share.

This negative earnings revision activity helps Slunk earn a Zacks Rank #5 (Strong Sell) at the moment. SPLK also holds “F” grades for both Value and Growth in our Style Scores system to help it earn an overall “F” VGM score.

Now isn’t time to give up on Splunk outright, but given its rough near-term outlook and the current market volatility, it seems best to stay away from SPLK for now.

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