As the Nasdaq continues trading over 6,000, it has become hard to find Internet, chip and cloud software firms that:
- Are posting double-digit sales growth
- Aren't facing any major long-term competitive and/or secular headwinds.
- Trade at moderate sales and/or earnings multiples.
It is a little easier, however, to find value plays among enterprise hardware firms, as well as among enterprise software providers that get a majority of their revenue from traditional software licenses and related maintenance/support contracts rather than cloud apps. Here are three companies that fit the bill.
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Splunk Inc. (SPLK) sold off in late May after reporting disappointing April quarter license revenue growth, and making a smaller-than-expected full-year billings guidance hike. With the stock having added to its losses since, Splunk is now down nearly 40% from its early-2014 highs, and trades for a reasonable multiple of 4.8 times its consensus fiscal 2018 (ends in January 2018) billings estimate after backing out net cash from the company's market cap.
Splunk, the biggest provider of software for analyzing machine and log data from IT systems and apps, does face some meaningful competitive threats. In particular, the open-source ELK software stack provided by startup Elastic and others -- it consists of the Elasticsearch log data search tool, as well as software for processing and visualizing log data -- has been gaining followers. Elastic's clients include companies such as Facebook (FB) , Netflix (NFLX) , Sprint (S) and Walmart (WMT) .
But Splunk's feature set and flexibility still make it very popular among enterprises that prefer to avoid the challenges involved in piecing together an open-source alternative, as does the large ecosystem of third-party apps and add-ons supporting its software. The company is closing in on 14,000 customers after adding close to 500 last quarter. And though the lion's share of its revenue comes from on-premise software deployments -- many customers prefer to implement Splunk's software close to where the data it analyzes is created -- Splunk's cloud revenue more than doubled annually last quarter to $17.8 million.
Splunk's near-term challenges may go beyond the European sales execution issues brought up on its last earnings call. But this is still a company expected to see its billings grow 27% this fiscal year, as corporate interest in analytics tools that can derive operational and security insights from machine data remains strong. Overall, Splunk still seems to be on sound footing.
It's easy to be skeptical about an enterprise hardware firm that's losing money and competing head-on with HP Enterprise Co. (HPE) and Cisco Systems Inc. (CSCO) . But Nutanix Inc.'s (NTNX) technology, high-profile partnerships and market positioning arguably make it a unique case.
With the help of OEM/reseller deals with Dell (DVMT) and Lenovo (LNVGY) , Nutanix is a top enterprise provider of hyperconverged systems -- they integrate server, storage and networking functions, come bundled with virtualization and management software, and can scale to hundreds or thousands of nodes that can be jointly managed. While the likes of Alphabet/Google (GOOGL) and Facebook have the engineering resources to create their own hyperconverged systems, enterprises are more likely to turn to Nutanix and its peers.