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.
) 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 (
) andBlackRock (
), 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,"
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 (
) andFord (
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,"
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.
"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
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
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.