Splunk Earnings: What Wall Street's Saying

NEW YORK (TheStreet) -- Splunk (SPLK) shares surged 11% to $50.25 on Friday as investors cheered the software maker's quarterly revenue beat after it added more than 500 customers in the quarter.

The San Francisco-based company reported fiscal second-quarter revenue of $101.5 million, up 52% from last year and above consensus expectations of $93.9 million. Splunk's licensed revenue rose 44% year over year to $62.1 million.

Splunk said it signed more than 500 new customers in the quarter, bringing its total worldwide customers to 7,900.

"We are pleased to deliver another strong quarter and thank our customers and partners for their continued support," said Godfrey Sullivan, chairman and CEO. "We continue to invest heavily in product innovation, including the industry's first 100% uptime SLA for Splunk Cloud, we shipped a brand new product -- the Splunk App for Stream for wire data -- and delivered a new release of our App for Enterprise Security."

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Splunk reported an adjusted profit of 1 cent a share vs. consensus estimates of a loss of 2 cents a share for the quarter ended July 31. Adjusted operating income rose to $1.6 million from a loss of $761 million in the year-earlier quarter. It reported a net loss of $60.8 million, or 51 cents a share.

Here's what analysts were saying about Splunk on Friday.

Brian White, Cantor Fitzgerald (Buy; $83 PT)

Last night, Splunk reported very strong 2Q:FY15 results, with revenue that handily beat our projections (and FactSet Consensus) and customer additions that set a 2Q record, while the company increased its outlook for FY:15. In our view, this was one of Splunk's best performances in recent quarters and the company is now heading into what has historically been a seasonally strong part of its fiscal year. Furthermore, Splunk's Worldwide User's Conference is right around the corner (October 6-9), an event that we believe offers the company a venue to provide investors with a deep dive into new innovations and a glimpse into expanding customer use cases. Finally, we believe the stock has undergone undue punishment in recent months (down 34% YTD, down 57% from the peak in February), despite positive fundamental trends this year, and we reiterate our BUY rating and 12-month price target of $83.00.

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Brendan Barnicle, Pacific Crest Securities (Outperform; $68 PT)

While many investors were concerned when Splunk lowered price at the low end of its offerings, the company reiterated that its low entry-level pricing is attracting new users and new use cases to Splunk, which ultimately drives the larger deals and larger transactions that came in FQ2.

Splunk's patented algorithms give it a strong competitive advantage, enabling long-term growth of 30% to 40% because the company faces little competition. To maintain its leadership, the company is developing an application ecosystem. As customers adopt these applications, Splunk will assure continued data growth and high renewals. In addition, Splunk is discovering new use cases, which is driving its total addressable market (TAM) beyond our initial expectation of $31.9 billion. As a result, we believe Splunk is well positioned to continue to outperform expectations and its peers.

Greg McDowell, JMP Securities (Market Outperform; $66 PT)

We maintain our Market Outperform rating and $66 price target on Splunk after the company reported F2Q15 earnings of $0.01 versus consensus of ($0.02), with revenue of $101.5 million, up 52% yoy, versus consensus of $93.9 million, and license revenue of $62.1 million versus consensus of $57.6 million, leading the stock to rise 9% in the aftermarket. The license upside in our model was driven by better than expected customer additions (500 versus our estimate of 400), more deals over $100k than we were expecting (226 versus our estimate of 170), and most impressively, Splunk closed more transactions in the quarter than in any other quarter in its history. The company guided well, and meaningfully raised full year revenue guidance, with $426 million in expected revenue at the midpoint versus consensus of $412 million. We like Splunk because we believe it is the company best leveraged to the big data trend, and it attacks a large and under-penetrated market.

Shaul Eyal, Oppenheimer (Outperform; $77 PT)

Results beat SPLK's own revenue plan, and performance was strong across all core metrics. More transactions closed during the Q than during any other Q in the company's history. New products and upgrades were announced during 2Q as management continued to expand the company's reach. Use cases continue to proliferate, driving accelerated adoption, and SPLK continues to evolve into a multi-product company targeting markets with high potential.

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TheStreet Ratings team rates SPLUNK INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate SPLUNK INC (SPLK) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 214.6% when compared to the same quarter one year ago, falling from -$16.13 million to -$50.76 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Software industry and the overall market, SPLUNK INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has declined marginally to $18.91 million or 4.73% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • The share price of SPLUNK INC has not done very well: it is down 15.60% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • SPLUNK INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, SPLUNK INC reported poor results of -$0.75 versus -$0.39 in the prior year. This year, the market expects an improvement in earnings ($0.00 versus -$0.75).

--Written by Laurie Kulikowski in New York.

Follow @LKulikowski

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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