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Splunk (SPLK) Down 0.9% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Splunk (SPLK - Free Report) . Shares have lost about 0.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Splunk due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Splunk Surpasses Q4 Earnings & Revenue Estimates

Splunk reported fourth-quarter fiscal 2021 non-GAAP loss of 38 cents per share, which beat the Zacks Consensus Estimate of a penny but fell 60.4% year over year.

Revenues decreased 5.8% year over year to $745.1 million but beat the consensus mark by 10.2%.

Quarter in Details

License revenues (54.5% of revenues) were $406 million, down 21.6% year over year. Cloud services revenues (23% of revenues) surged 72.4% year over year to $171.4 million. Maintenance & service revenues (22.5% of revenues) fell 3.7% to $167.7 million.

Notably, Cloud represented 51% of total software bookings in the reported quarter, higher than 46% in the previous quarter and 42% in the year-ago quarter. Splunk has been benefiting from partnerships with Alphabet and Amazon’s cloud offerings, namely Google Cloud and AWS.

Splunk ended the quarter with total annual recurring revenues (“ARR”) of $2.37 billion, up 40.8% year over year. Cloud ARR soared 83.3% year over year to $810 million.

The company ended fiscal fourth quarter with 510 customers with ARR greater than $1 million, up 44% year over year.

Notable clients in the reported quarter included California Pizza Kitchen, Cornerstone OnDemand, Europcar (France), Ghana International Bank, Lockheed Martin Space, Nationwide Building Society (United Kingdom), NATO Communications and Information Agency (Belgium), The New York City Fire Department, NVIDIA, Okta, Shopify, Strava, Tesco (United Kingdom), Tide, and United States Census Bureau.

Remaining performance obligation (“RPO”) was $1.99 billion, up 10.2% year over year. The company expects to recognize $1.23 billion (indicating a 23.2% year-over-year increase) of this RPO as revenues over the next 12 months.

Non-GAAP gross margin contracted 340 basis points (bps) from the year-ago quarter to 83.4% due to greater proportion of cloud revenue contribution. Splunk’s non-GAAP cloud gross margin expanded 770 bps from the year-ago quarter to 61.7%

Non-GAAP operating expenses, as a percentage of revenues, increased to 70.2% from 62.6% in the year-ago quarter. Research & development, general and administrative, and sales & marketing expenses expanded 150 bps, 80 bps and 520 bps year over year, respectively.

Non-GAAP operating income declined 48.3% year over year to $98.6 million.

As of Jan 31, 2021, cash & cash equivalents, including investments, were $1.86 billion compared with $1.99 billion as of Oct 31, 2020.

Net cash used in operating activities was $23.8 million compared with year-ago quarter’s net cash used in operating activities of $58.8 million and sequential quarter’s net cash used in operating activities of $43.1 million.

Free cash outflow was $32.6 million at the end of the fourth quarter compared with the year-ago quarter’s free cash outflow of $106.4 million and the previous quarter’s outflow of $45.6 million.

Key Q4 Highlights

During fiscal fourth quarter, Splunk announced new enhancements to Splunk Cloud and Splunk Enterprise to strengthen Splunk’s Data-to-Everything Platform offering. The company also updated Data Stream Processor, Connected Experiences and Machine Learning Environment.

Splunk also announced a series of updates to IT Service Intelligence, Enterprise Security and Mission Control product offerings.

Moreover, at .conf20, the company launched Observability Suite that combines Data-to-Everything Platform with acquired technologies including SignalFx, Ominition, Streamlio,Plumbr, Rigor and Flowmill.

Guidance

For first-quarter fiscal 2022, Splunk expects revenues in the range of $480 million to $500 million. The company had reported revenues of $434 million in first-quarter fiscal 2021.

Non-GAAP operating margin is likely to be -30%.

Moreover, total ARR is expected between $2.42 billion and $2.44 billion. Splunk had reported total ARR of $1.78 billion in first-quarter fiscal 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -15.68% due to these changes.

VGM Scores

At this time, Splunk has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Splunk has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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