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Splunk (SPLK) to Report Q3 Earnings: What's in the Cards?

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Splunk Inc. (SPLK - Free Report) is scheduled to release fiscal third-quarter 2018 results on Nov 16.

Last quarter, the company’s non-GAAP earnings surged 60% year over year to 8 cents per share and beat the Zacks Consensus Estimate of 6 cents. In the trailing four quarters, the company has delivered an average positive surprise of 54.44%.

Revenues in the second quarter increased 31.6% year over year to $279.9 million and beat the Zacks Consensus Estimate of $268.7 million.

Shares of Splunk have gained 32.5% year to date, outperforming the 29.2% rally of the industry it belongs to.

Let’s see how things are shaping up for the upcoming announcement.

Factors to Consider

Splunk’s focus to strengthen its product pipeline in order to benefit from the growing data and analytics market is expected to be a key growth driver. The company's market opportunity is growing on the back of its software, which is traditionally used for IT operational intelligence, security, fraud-detection, app analytics and other related cases.

Splunk announced a number of new and updated versions of existing products in the third quarter, which include Splunk Enterprise 7.0, Splunk IT Service Intelligence (ITSI) 3.0 and Splunk User Behavior Analytics (UBA) 4.0. We believe this will help it to expand its customer base. The company’s continuous updates to Splunk Cloud are also a positive.

Moreover, Splunk also acquired some assets of San Francisco, CA-based Rocana last month. The acquisition is expected to enhance Splunk’s machine learning capabilities and data management platform.

We note that Splunk is well poised to benefit from the ongoing shift to modern analytics-based security information and event management (SIEM) from a traditional structured data legacy-based one, which drove large security orders for the company.

Splunk Insights for Ransomware launched in the second quarter is a step toward that direction. The company also unveiled updates to fraud and cloud monitoring solutions in the soon-to-be reported quarter.

However, increasing investments in research and development and higher operating costs are anticipated to be a drag on profitability. With Splunk exploring and expanding into new markets, sales and marketing expenditures are also predicted to rise significantly, thereby hurting margins.

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

Splunk Inc. Price and EPS Surprise

Splunk Inc. Price and EPS Surprise | Splunk Inc. Quote

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

Splunk has a Zacks Rank #3 and an Earnings ESP of 0.00%, which makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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