![]() ![]() Splunk is forecasted to grow at 22% versus the security peer group at around 18%. Hence we use EV/Sales as the primary valuation metric. Since different companies have varying amounts of cash on their balance sheets and different amounts of debt, we believe EV/Sales makes the most sense. The best metric to evaluate the performance is on Price/Sales or EV/Sales metrics in such a scenario. Given the license model changes, many software companies in our coverage universe are not sufficiently profitable. Many software companies sold their products using a perpetual license previously but are now selling software on a term-based license. Many software companies in the tech industry are transitioning to the subscription/SaaS license model from a perpetual model. We use the EV/Sales multiple when valuing Splunk. The following charts illustrate Splunk's stock performance We expect 2021 to be a better year for Splunk, driven by new leadership in sales, product, and other operational roles, more recent cloud-focused solutions such as the Observability cloud, and improving execution. Now that the company has made the challenging transition to being "cloud-first" in delivering all its products, we expect the stock performance to improve from the current levels. Now the stock is trading near the 52-week low of about $110. YTD, Splunk stock is down 34%, and over the previous 12 months, the stock is down 41%. Splunk underperformed both Nasdaq and S&P indices YTD as well as over the last twelve months. The overall demand environment is strong, and with our product and services innovations, plus new high-caliber field and product leadership with Teresa and Shawn, our setup for continued high growth has never been better." Stock at a 52-week lowįollowing Splunk's mixed results, the stock declined about 7%. CFO Jason Child noted on the call, "Q1 was a great start to fiscal '22, and we're pleased to have the most challenging phase of the transitions behind us. Splunk management was bullish on its growth prospects and position within the industry. ![]() With more than 50% of software bookings now coming from Cloud, our financial model is rapidly evolving into that of a true SaaS business." Splunk CEO Douglas Merritt noted on the call that "We have now turned the corner into the second half of the journey we embarked on just over two years ago to become a cloud-first company. The following chart illustrates Splunk's reported numbers versus our estimates. EPS came in at -$0.91 versus the consensus estimate of -$0.70. In addition, operating expenses were higher than anticipated due to higher commission costs due to ARR outperformance during the quarter, onboarding of larger-than-expected numbers of engineers and salespeople, and higher costs of infrastructure incurred. This operating margin underperformance rattled investors. The operating margin was -35% versus guidance of -30%. Impressively, Splunk has 537 customers with $1 million in ARR. Cloud ARR was $877 million and was up 83% Y/Y. As a result, ARR grew 39% and was ahead of guidance of 36-37%. More importantly, 56% of total software bookings in the quarter were in the cloud and 51% during the trailing twelve months ( TTM). Cloud revenue during the quarter is about 39% of total revenue. Cloud revenue was $194 million and was up 73% Y/Y or up from $112 million from the year-ago period. Splunk reported F1Q revenue of $501 million versus the consensus estimate of $491 million. The stock is a reasonably valued cutting-edge software company growing its cloud business very fast and putting up impressive growth numbers, expanding its customer base and industry-leading position, making the stock a buy. ![]() Splunk is still the leader in log management and has expanded its offerings into newer areas such as observability. We believe the stock is washed out at current levels, and we expect it to do better in the next 12 months. The stock is currently trading at 6.2x EV/C2022 sales versus the peer group average of 10x despite growing faster. Splunk stock is at its 52-week low of around $110, and we believe the stock may have bottomed, and there is an upside from the current levels. Photo by Sundry Photography/iStock Editorial via Getty Imagesįollowing mixed F1Q22 results, we are buying shares of Splunk ( NASDAQ: SPLK) at the current levels.
0 Comments
Leave a Reply. |
Details
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |