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Factors Setting the Tone for Splunk's (SPLK) Q3 Earnings

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Splunk (SPLK - Free Report) is set to report third-quarter fiscal 2021 results on Dec 2.

For the quarter, the Zacks Consensus Estimate for earnings has remained steady at 10 cents over the past 30 days, indicating an improvement from a loss of 12 cents per share reported in the year-ago quarter.

For third-quarter fiscal 2021, Splunk expects revenues in the range of $600 million to $630 million. The consensus mark for revenues currently stands at $612.3 million, suggesting a decline of 2.2% from the year-ago quarter’s reported figure.

Notably, the company’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while missing in one, the average surprise being 2.54%.

Let’s see how things have shaped up for this announcement.

Splunk Inc. Price and EPS Surprise

Splunk Inc. Price and EPS Surprise

Splunk Inc. price-eps-surprise | Splunk Inc. Quote

Key Factors to Consider

Splunk’s portfolio strength has not only helped it win new customers but also expanded its existing customer base. Solid demand for the company’s enterprise, security and cloud solutions is expected to have driven the top line in the to-be-reported quarter.

Additionally, Splunk’s solid partner base, comprising the likes of Amazon Web Services (AWS), Accenture, and Cisco has been a key catalyst. Integration of its products in partner solutions is expected to have enhanced the company’s exposure, particularly among enterprise customers.

The top line is expected to have benefited from an expanded customer base, courtesy of growth in its partner ecosystem. As of Jul 31, the company’s customers included more than 90 of the Fortune 100 companies.
Cloud revenues soared 78.7% from the year-ago quarter to $125.9 million in the last-reported quarter. The momentum is expected to have continued in the third quarter on the back of increased utilization of cloud-based services.

Moreover, Splunk has been transitioning to a renewable model, which is expected to have driven the top line. Management discontinued new perpetual license offerings for fiscal year 2021.

However, the ongoing business model transition is expected to have negatively impacted the top-line. Additionally, the transition from perpetual licenses to subscription or renewable-based model is expected to have severely hurt the company’s cash flow generation ability due to lower upfront payment in the to-be reported quarter.

Moreover, increasing cloud revenues in the product mix are expected to have kept margins under pressure in the to-be-reported quarter.

Q3 Development

On Oct 20, Splunk announced that the completion of the acquisition of Plumbr, an application-performance-monitoring company offering auto-instrumentation, Real User Monitoring and deep application-performance insights for enterprise applications.

The company also announced the acquisition of Rigor, a digital experience-monitoring company offering advanced synthetic monitoring and optimization tools. Markedly, Rigor’s solutions help customers optimize end-user experiences in digital channels.

During the quarter, Splunk announced the appointment of Carrie Palin as senior vice president and chief marketing officer, John Sabino as chief customer officer and Christian Smith as chief revenue officer.

Moreover, Splunk and Deloitte announced a collaboration that will combine Deloitte’s Fusion Managed Services offerings with Splunk Phantom. The solution will improve agility of enterprises to consistently detect and respond to increasing cybersecurity threats.

What Our Model Says

According to the Zacks model, the combination of a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Splunk has an Earnings ESP of 0.00% and a Zacks Rank #5 (Strong Sell). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some companies, which, per our model, have the right combination of elements to post an earnings beat in their upcoming release.

Signet Jewelers Limited (SIG - Free Report) has an Earnings ESP of +13.95% and currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Toronto-Dominion Bank (TD - Free Report) has an Earnings ESP of +3.63% and holds a Zacks Rank of 2, at present.

Construction Partners, Inc. (ROAD - Free Report) has an Earnings ESP of +16.02% and carries a Zacks Rank of 3, currently.

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