Splunk (SPLK) Gains After Crushing Q4 Profit Estimates, Analysts Lower PTs on Lower Q1 Revenue Guide
Shares of Splunk (NASDAQ: SPLK) are up 3.4% in pre-open trading Thursday after the company reported better-than-expected profit for its fourth quarter ended January 31.
The data analytics company recorded an adjusted profit of $0.38 per share to smash the analyst consensus of a profit of $0.04 per share. Revenue came in at $745 million, again easily topping the $686 expected from market analysts.
“The market’s demand for data-driven solutions that enable digital and cloud transformation has never been higher. We now have more than 500 customers investing over $1 million annually in our platform and solutions. At our size, Splunk is one of the fastest growing companies in the history of enterprise software,” Doug Merritt, President and CEO of Splunk, said.
Total revenues for 2020 were $2.23 billion, down 5% year-over-year, despite a rise in cloud revenues of 77% to $554 million. For the ongoing quarter ending April 30, the company is expecting to record a total annual recurring revenue (ARR) between $2.42 billion and $2.44 billion.
Total revenues are expected to be between $480 million and $500 million, which is lower than the $512.9 million expected from the Street. SPLK forecasts its non-GAAP operating margin to be about -30%.
Amid a lower-than-expected Q1 revenue guide, multiple analysts moved to lower the price target on SPLK. Cowen’s Derrick Wood lowered the PT to $160.00 per share from the old $175.00 on SPLK, which holds a “Market Perform” rating at Cowen.
“While the improvement in execution is encouraging, we do not think SPLK is out of the woods, as evidenced by weaker 1Q guide & mgmt commentary on visibility. SPLK is still trying to transform its model w/ a lot of moving pieces; GTM motions continue to be tweaked; the broader tech landscape is getting more complex; and mgmt expects buying behavior to remain uneven. Cloud & Observability are highlights, and while the book of term renewals will be up significantly this year (esp 2H), mgmt expects heightened scrutiny on these transactions,” the analyst wrote in a memo sent to clients today.
Similarly, Needham analyst Jack Andrews downgraded the PT to $265.00 per share from $275.00 on the Buy-rated SPLK. Despite a PT downgrade, Andrews sounds more bullish about the outlook for SPLK.
“We believe SPLK’s 4QFY21 earnings report may, with the benefit of time, represent a significant inflection point that serves to reinvigorate investor interest and propel the shares meaningfully higher towards our new $265 price target. In the near term, we believe commentary around the macro environment (improvements in large deal closures), win rates (remaining stable in the mid-high 80% range) and overall cloud momentum (cloud accelerating to 83% YoY growth, cloud bookings reaching 51% of total) provide reassurance that SPLK’s value proposition continues to resonate.
“Over the longer term, commentary regarding a potential uptick in new logos, ramping OCF, and a building ARR renewal base provide optimism for SPLK to be revalued as a cloud company. We encourage investors to aggressively accumulate shares at current levels,” Andrews said in today’s note.