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Factors Setting the Tone for Splunk's (SPLK) Q4 Earnings

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Splunk (SPLK - Free Report) is set to report fourth-quarter fiscal 2021 results on Mar 3.

For the quarter, the Zacks Consensus Estimate for earnings has remained steady at 1 cent over the past 30 days, indicating a decline of 98.9% from the year-ago quarter.

For fourth-quarter fiscal 2021, Splunk expects revenues in the range of $650 million to $700 million. The consensus mark for revenues currently stands at $676.4 million, suggesting a decline of 14.5% from the year-ago quarter’s reported figure.

Notably, the company’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters while missing in two, the average surprise being 42.8%.

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

The ongoing business model transition is expected to have negatively impacted Splunk’s top line in the to-be-reported quarter.

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.

Nonetheless, 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 aided 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 Oct 31, the company’s customers included over 90 of the Fortune 100 companies.

Cloud revenues soared 79.9% from the year-ago quarter to $144.7 million in the fiscal third quarter. The momentum is expected to have continued in the to-be-reported quarter on the back of increased utilization of cloud-based services and solutions including Splunk Machine Learning Environment and Data Stream Processor 1.2 launched in the fiscal third quarter.

The company also announced Splunk Log Observer and Splunk Real User Monitoring. Other notable solutions included Splunk Service Intelligence for SAP solutions, enhancements to Splunk ITSI and Splunk Infrastructure Monitoring Add-On.

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

Q4 Development

On Nov 24, Splunk announced signing a definitive agreement to acquire Flowmill, a Palo-Alto based cloud network observability company with expertise in network performance monitoring. The acquisition is expected to have closed in the fiscal fourth quarter, subject to customary closing conditions.

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 -442.1% and a Zacks Rank #3. 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.

Vail Resorts, Inc. (MTN - Free Report) has an Earnings ESP of +12.44% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ballard Power Systems, Inc. (BLDP - Free Report) has an Earnings ESP of +22.22% and carries a Zacks Rank of 3, currently.

Playa Hotels & Resorts N.V. (PLYA - Free Report) has an Earnings ESP of +3.23% and carries a Zacks Rank of 3, currently.

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