If you are interested in Splunk (SPLK) I'd advise you to stay on the sidelines. Why? Let's start with for the year to date, shares, at around $53, are flat. The company reports its third quarter on Tuesday.
Shares of the machine intelligence firm reported a slowdown in license growth and a weak gross margin. Back in August, Splunk reported second-quarter earnings of 5 cents per share, 2 cents better than the consensus estimate. Revenue rose 43.5% to $212.8 million versus the $200.5 million estimate.
Second-quarter license revenue grew 32%, but that was down from 41% in the first quarter. Likewise, billings grew 40% in the second quarter, but that was down from the 48% growth posted in the first quarter.
If that wasn't disappointing enough, the company reported a gross margin of 83.8% below the analyst estimate of 85%.
Management sees third-quarter revenue of $228 million to $230 million versus the $228 million estimate. Operating margin is expected to between 5% and 6%.
For the year, the company is forecasting revenue of $910 million to $914 million versus the $897 million consensus. The company didn't boost guidance and investors found that disappointing as well.
After the second-quarter report, analysts were quick to defend the company. First, analysts said the third-quarter guidance was in line with the consensus estimate -- but the company typically beats the estimate so it is not a big deal the company didn't increase guidance.
Second, the company's cloud computing business is on track to deliver $100 million in revenue and the transition to the cloud is suppressing the company's billings growth. The 40% growth in billings would have been better if customers were buying software licenses instead of the company's cloud offering.