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Splunk (SPLK) Up 28% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Splunk (SPLK - Free Report) . Shares have added about 28% 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 the most recent earnings report in order to get a better handle on the important drivers.

Splunk Q2 Earnings Beat on Healthy Revenue Growth

Splunk reported solid second-quarter fiscal 2024 results, with the bottom and the top line beating the respective Zack Consensus Estimate. The company’s expense-control strategy and focus on improving operational efficiency supported the bottom line. Splunk is witnessing healthy traction in cloud services and the cybersecurity domain. Despite macroeconomic headwinds, the company reported higher revenues year over year, driven by rising customer engagements, continuous innovation and a robust product portfolio.

Net Income

On a GAAP basis, the company incurred a net loss of $63.2 million or a loss of 38 cents per share compared with a net loss of $209.7 million or a loss of $1.30 per share in the prior-year quarter. The improved performance was primarily attributable to top-line growth and lower operating expenses.

Non-GAAP net income in the reported quarter was $134.8 million or 71 cents per share compared with $16.9 million or 9 cents per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 29 cents.

Revenues

Total revenues in second-quarter fiscal 2024 increased to $910.6 million from $798.8 million in the prior year. The top line surpassed the consensus estimate of $888 million. The top-line growth was driven by positive demand trends in cloud services, cybersecurity and observability domains. Backed by its enterprise scale and unified product portfolio, Splunk witnessed significant customer additions and several project wins in the public and private sectors.

Cloud services revenues rose to $445.2 million from $346.4 million in the year-ago quarter. The uptick was propelled by rising demand for its cloud services. License revenues were $295.4 million, up from $281.7 million. Net sales from Maintenance and services decreased marginally to $170 million from $170.6 million in the year-ago quarter.

Total annual recurring revenues (ARR) were $3.86 billion, up 16% year over year. The company had 834 customers with an ARR of more than $1 million at the end of the second quarter. Cloud ARR increased 27% year over year to $1.92 billion.

Other Details

Gross profit increased to $698.7 million from $592 million in the prior-year quarter. Non-GAAP gross margin from cloud services rose 450 basis points year over year to an all-time high of 73.8%, surpassing management’s expectations. Non-GAAP operating income aggregated $151.6 million compared with $28.6 million in the prior-year period, with respective margins of 16.7% and 3.6%.

Cash Flow & Liquidity

During the first six months of fiscal 2024, Splunk generated $501.6 million net cash from operating activities compared with $124.7 million in the year-ago period. As of Jul 31, 2023, the company had $1,523.5 million in cash and cash equivalents with $3,102.9 million long-term debt.

Outlook

For third-quarter fiscal 2024, management estimates total revenues to be in the range of $1.02-$1.035 billion. Non-GAAP operating margin is projected in the range of 24.7-25.3%. Total ARR is expected to be around $3.98 billion. The company expects a free cash flow of 75 million in the upcoming quarter.

For fiscal 2024, management updated their previous revenue guidance level as it expects healthy demand trends backed by higher investment in research & development and a focus on operational efficiency. The company expects revenues to be approximately $3.925-$3.95 billion compared with the previous guidance of $3.9 billion. Non-GAAP operating margin is anticipated to be within 21-21.5%, higher than the previous estimated range of 18-18.5%. Free cash flow is projected between $855 million and $875 million, up from the previous range of $805-$825 million. Total ARR is expected in the band of $4.150 billion to $4.175 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

The consensus estimate has shifted 431.11% due to these changes.

VGM Scores

At this time, Splunk has a nice Growth Score of B, a grade with the same score on the momentum front. However, 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Splunk has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Splunk belongs to the Zacks Internet - Software industry. Another stock from the same industry, Sea Limited Sponsored ADR (SE - Free Report) , has gained 2.1% over the past month. More than a month has passed since the company reported results for the quarter ended June 2023.

Sea Limited Sponsored ADR reported revenues of $3.01 billion in the last reported quarter, representing a year-over-year change of +9.1%. EPS of $0.83 for the same period compares with -$1.03 a year ago.

Sea Limited Sponsored ADR is expected to post earnings of $0.59 per share for the current quarter, representing a year-over-year change of +189.4%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

Sea Limited Sponsored ADR has a Zacks Rank #5 (Strong Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.


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