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Why Is Splunk (SPLK) Up 22% Since Last Earnings Report?

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It has been about a month since the last earnings report for Splunk (SPLK - Free Report) . Shares have added about 22% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Splunk due for a pullback? 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 catalysts.

Splunk Q4 Earnings Beat Estimates, Revenues Up Y/Y

Splunk reported fourth-quarter fiscal 2022 (ended Jan 31, 2022) non-GAAP earnings of 66 cents per share, which beat the Zacks Consensus Estimate by 447.4%. The company had reported earnings of 38 cents per share in the year-ago quarter.

Fourth-quarter total revenues grew 20.9% year over year to $901.1 million, beating the consensus estimate by 16.4%. Splunk benefited from strong execution across its platform, observability and security businesses as organizations partnered with it to secure their business infrastructure.

In fiscal 2022, revenues increased 19.9% year over year to $2,673.7 million.

Quarter in Detail

License revenues (49.3% of total revenues) were $444.6 million, up 9.6% year over year. Cloud services revenues (32.1%) surged 69% to $289.4 million. Maintenance and service revenues (18.6%) fell 0.3% to $167.2 million.

Splunk ended the quarter with total annual recurring revenues (ARR) of $3.12 billion, up 32% year over year. Cloud ARR soared 65% to $1.34 billion.

The company ended the quarter with 317 customers generating Cloud ARR greater than $1 million, up 70% year over year. It had 675 customers with total ARR greater than $1 million, up 32%.

Other Details

Non-GAAP gross margin contracted 110 basis points (bps) from the year-ago quarter to 82.3%. Non-GAAP Cloud services gross margin expanded 480 bps to 66.5%. Non-GAAP operating income was $144.2 million compared with $98.6 million in the year-ago quarter.

Splunk’s expansion and renewal customers include Box, Inc., CVS Health, Fred Loya Insurance, Intel and Papa John’s International.

The company appointed Gary Steele as chief executive officer and a member of the board of directors, effective Apr 11, 2022.

Cash Flow & Liquidity

In fiscal 2022, the company generated $128 million of cash from operating activities (with a free cash flow of $117 million) against a cash utilization of $190.9 million in fiscal 2021. As of Jan 31, 2022, it had $1,428.7 million in cash and cash equivalents with $3,137.7 million of senior notes.

Guidance

For the first quarter of fiscal 2023 (ending Apr 30, 2022), Splunk expects total revenues in the range of $615-$635 million. Non-GAAP operating margin is likely to be between -20% and -25%.

For fiscal 2023 (ending Jan 31, 2023), the company expects Cloud ARR to be at least $2 billion. It estimates total ARR to be about $3.9 billion. Total revenues are likely to be between $3.25 billion and $3.3 billion. Non-GAAP operating margin is anticipated to be between 0% and 2%. Operating cash flow is estimated to be at least $400 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Splunk has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Splunk has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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