Splunk Making Splash Crunching Big Data For Companies

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It could be another banner year for Splunk's top line, as the enterprise software maker rolls out more products and services in pursuit of a widening array of customers, and as interest mounts in the analytics field known as Big Data.

"They have very innovative offerings and demand is growing robustly," said Steve Koenig, a Wedbush Securities analyst.

Splunk ( SPLK ) collects vast swaths of data from many sources, meshes the information with other data sets, then organizes and analyzes results in real time to spot patterns.


Noting consensus expectations of about 35% revenue growth this year, Koenig said he thinks the San Francisco-based company could expand its top line even more, perhaps by as much as 40%.

Splunk claims more than 6,400 customers. Companies "try Splunk and then they want more of it," Koenig said.

He notes that the company has made a name for itself helping clients' information technology and security departments, two areas ripe for ongoing investment, predict service degradation problems before they happen. This saves time and money, and prevents disruptions to productivity.

Splunk went public in April 2012 at $17 per share and its stock has zoomed nearly 330% since. Splunk joined the IBD Leaderboard of stocks this month.

Bigger In Data

Brian White, an analyst at Cantor Fitzgerald, says Splunk is transforming from a single-product company into a multiproduct one, offering more clients data gathering and mining services to meet ever more needs. He notes that in recent months Splunk has expanded working relationships withIDT ( IDT ) andBlackRock ( BLK ), among others.

He says at the same time Splunk is venturing outside its IT and security sweet spot, helping to create new avenues of profitability for clients, from energy-efficient buildings to what White calls smart farms.

"Customers are getting more serious about how they use this," White said.

Speaking at an investor conference in December, Splunk CEO Godfrey Sullivan explained that because tractors used by corporate farming operations now have GPS systems and wireless transmission capability, they produce data that can be broadcast from the fields back to a company headquarters. The information can be analyzed to assess everything from soil quality to temperature conditions, and the results can, for instance, be used to better understand when or how much seed to plant.

Similar work is developing with railroad operators and auto manufacturers, including electric car makerTesla Motors ( TSLA ) andFord ( F ).

McKenney's, a designer and builder of large facilities in the Southeast, has partnered with Splunk to collect data from about 100 buildings on Elgin Air Force Base, Sullivan said. From some 20,000 sensors placed throughout the buildings -- in card key access systems and lights, for example -- data are relayed back to Splunk's index and analyzed to assess patterns that help determine where and when energy is needed.

"They are harvesting the information off those sensors, putting it into Splunk, doing time series analysis about it, and saving millions of dollars worth of power," Sullivan said.

It is all about making the most of machine-generated -- or device-generated -- data in abundance in an emerging era, Sullivan said. This new era began when cell phones and various other devices went from analog to digital, he says, "and they learned how to communicate with each other through machine events and typically through a wire transmission capability."

This new generation of information, often structured in an unwieldy form that hardly resembles the data warehouses to which many are accustomed, has become known as Big Data.

"So how do you get value out of this new generation of data? You can use it to do things like identify fraud by looking at patterns on websites of trading activity, of logins vs. transactions vs. attempted wire transfers. If you look at and do pattern matches off this activity, you can do a lot of things," Sullivan said.

White says Splunk is a forerunner on this front along withTableau Software (DATA), which he called his top emerging tech pick for 2014. White chose Splunk as his overall top IT software pick for 2014.

Cloud Comparison

"There's definitely a lot of hype" around Big Data, White said, calling it at a point similar to where cloud computing was in 2008 and 2009.

Cloud computing has since become a household term and its use is pervasive, he adds.

"We are in the very, very, very early stages" with Big Data, White said. "But that's what makes this exciting: If you are positioned well now, you can really be an early mover" in the next big thing.

White estimated that Splunk's 2013 calendar year revenue growth was 47%. That figure will pull back some into the 30s this year, he said, as "you simply can't surge forever."

But he thinks Splunk will continue to bring in more customers and do more business with its existing clients as the uses for Big Data become more widely known and appreciated. "I think they can put up very good numbers for the next five years," he said.

Koenig, the Wedbush analyst, agrees. He notes that the moderately slower revenue growth could concern some, and the company's already lofty valuation could cause volatility in the stock this year. A relatively thin crowd of competitors could of course thicken, and if a better player emerges, that would pressure Splunk.

But Koenig says still-strong top-line generation, coupled with the expectation for ongoing growth in Big Data usage, makes Splunk an appealing stock. He also notes that, as a young firm of less than a decade, its sales force is still maturing. He estimates that it takes six to nine months for employees to become productive, so as the sales force gains greater tenure it should add to productivity in coming quarters.

"There is a lot of promise with Splunk," he said.

Splunk in November reported break-even fiscal third-quarter results, but revenue swelled 51% to $78.6 million, beating Wall Street's average estimate of $71.1 million.

Splunk reports fiscal fourth-quarter results in February. Analysts polled by Thomson Reuters on average expect a nickel profit on $90.2 million in revenue.

The company last week announced pricing of $81 a share for a follow-on stock offering of 6 million shares. And on Monday FBR & Co. analyst Daniel Ives said in a research note that he's raised his price target by 20 to 100, amid signs of an upbeat product cycle and market-share strength. Splunk shares set a high of 83.97 on Wednesday Jan. 22 and closed near 73 on Wednesday, where they were about two weeks earlier. Splunk stock is up 6% for the year to date.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Investing Ideas

Referenced Stocks: BLK , F , IDT , SPLK , TSLA

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