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Splunk (SPLK) Q3 Earnings and Revenues Surpass Estimates

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Splunk Inc. (SPLK - Free Report) reported third-quarter fiscal 2019 non-GAAP earnings of 38 cents per share, which beat the Zacks Consensus Estimate by 7 cents and increased 35.7% year over year.

Revenues surged 40.4% year over year to $481 million and comfortably surpassed the Zacks Consensus Estimate of $432 million. The increase in revenues was driven by greater utilization of Splunk’s products by existing customers and new customer wins.

Quarter in Details

Software revenues, which comprise license and cloud revenues, climbed 49% from the year-ago quarter to $325 million. Third-quarter RPO was $950 million, up 57.8% year over year.

Cloud revenues soared 87% from the year-ago quarter to $45 million on the back of increased utilization of cloud-based services.
 
Education and professional services represented 8% of total revenues. International operations represented 24% of total revenues.

In the reported quarter, annual recurring revenues (ARR) for cloud-only business is $200 million, which is double from a year ago.

The company continues its transition to a subscription or renewable model, which is evident from the fact that Splunk is expected to meet its 75% transition rate for fiscal 2020 in fiscal 2019. However, this transition is a headwind for the perpetual business, which is declining rapidly.

Splunk added more than 500 new enterprise customers in the quarter. The company had 111 orders of $1 million in the current quarter as compared with 61 in the previous quarter.

Splunk Inc. Price, Consensus and EPS Surprise

Product Update

During the quarter, the company released Splunk Enterprise 7.2, which facilitates users to ask question and take action.

Splunk also released Splunk Next, which brings the power of Splunk to more data sources and more people

Moreover, the company announced availability of Splunk for Industrial IoT, which will help industrial organisations to save cost and minimise down time.  

The company also announced integrations with Amazon Web Services (AWS) Security Hub, AWS Web Access Firewall, and made it easier to absorb AWS data into Splunk solutions via Trumpet.

Operating Details

Non-GAAP gross margin increased 20 basis points (bps) from the year-ago quarter to 84.5%.

Operating expenses, as percentage of revenues, declined significantly from $910.8 million in the year ago-quarter to $235.8 million. Research & development (R&D), general & administrative (G&A) and sales & marketing (S&M) expenses declined 770 bps,726 bps and 764 bps, respectively, year over year.

Non-GAAP operating profit was $53.2 million, down 14.2% from the year-ago quarter. Operating margin contracted 70 bps year over year.

Balance Sheet & Cash Flow

Splunk exited the quarter with cash & cash equivalents including investments of $2.67 billion compared with $891.6 million in the previous quarter

Cash flow from operations was $59.1 million while free cash flow totaled $51.8 million at the end of the reported quarter compared to cash flow from operations of $33.5 million and free cash flow of $28 million at the end of the second-quarter.

Guidance

For fourth-quarter fiscal 2019, Splunk expects revenues of $560 million. Non-GAAP operating margin is likely to be around 25-26%.

For fiscal 2019, Splunk anticipates revenues of almost $1.74 billion, up from the previous guidance of $1.68 billion. The company maintains its non-GAAP operating margin target of 11.5% and 12%

Management reiterated fiscal 2020 revenue target of $2 billion to be approximately $2.15 billion.

Zacks Rank & Stocks to Consider

Currently, Splunk has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader computer and technology sector include Intel Corporation (INTC - Free Report) , SS&C Technologies Holdings, Inc. (SSNC - Free Report) and Upland Software, Inc. (UPLD - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Intel, SS&C and Upland Software is projected to be 8.4%, 13.5% and 20%, respectively.

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