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What's in the Cards for Splunk (SPLK) in Q1 Earnings?

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Splunk Inc.  is scheduled to release first quarter fiscal 2017 results on May 26. Splunk posted a negative surprise of 7.41% in the last quarter. The company has posted an average negative surprise of 7.00% over the trailing four quarters. Let’s see how things are shaping up for the upcoming announcement.

Factors to Consider

Splunk has been strengthening its product pipeline to benefit from the growing data and analytics market. Over the past few years, the analytics market has seen strong growth especially in the enterprise domain, which is a positive for the company. In 2015, the company made a couple of acquisitions to enhance its cyber security offerings. It bought Caspida, Inc., a machine learning and analytics services provider, and Metaphor Software, an anomaly and prediction analytics company.

However, increasing investments in research and development, coupled with higher operating costs, are anticipated to be a near-term drag on profitability. As Splunk continues to explore and expand into new markets, sales and marketing expenditures are also predicted to rise significantly, thereby hurting margins in the near term.

Also, growing competition from established players such as International Business Machines (IBM - Free Report) , SAP, Amazon and Microsoft (MSFT - Free Report) , all of which are vying to get a bigger share of the market, is a concern.

For the first quarter, Splunk expects revenues in the range of $172 million and $174 million and non-GAAP operating margin in the range of negative 1% to 2%. 

Earnings Whispers

Our proven model does not conclusively show that Splunk is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below

Zacks ESP: The Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 62 cents.

Zacks Rank: Though Splunk’s Zacks Rank #3 (Hold) increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Stock to Consider

Here is a stock you may want to consider as our model shows that it has the right combination of elements to post an earnings beat this quarter:

TiVo Inc. with an Earnings ESP of +25.00% and a Zacks Rank #1 (Strong Buy)

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