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Splunk Rebounds on Growth Prospects

NEW YORK ( TheStreet) -- Splunk (SPLK - Get Report) bucked broad market declines Friday to close up more than 3% to $46.76 on more than double the average volume as investors forgave the company for its negative margins guidance the prior evening.

Investors took the opportunity to book profits on the stock in after-hours Thursday, as shares ran up more than 55% year-to-date. The company said that while it was raising its full-year revenue outlook, second-quarter operating margins would be negative. Splunk explained that it was investing heavily in data platform, content and Software-as-a-Service offerings.

For the first quarter, the company reported a surge in revenue growth, even as other software companies report a slowdown in growth. Revenue increased 54% to $57.2 million. At the same time, its headcount grew even more: 72% year-over-year, demonstrating just how aggressively the company is investing in growth.

Because investors have been rewarding companies that are aggressively investing in growth at a time when growth stocks have been scarce, Splunk shares recovered by the next day.

"Splunk is willing to take a margin hit for the sake of furthering their revenue growth ... and it's getting rewarded rather than penalized for it," said Shebly Seyrafi, an analyst for FBN Securities.

"Big data is an important trend that will stay around for several years, and Splunk as pure play is a good way to play on that trend," he added. "People realize that this is one of the best stories in technology."

Written by Andrea Tse in New York

>To contact the writer of this article, click here: Andrea Tse.

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