Machine data analytics company Splunk (SPLK) is set to report third quarter fiscal 2020 earnings results after the closing bell Thursday. Strong revenue and earnings growth projections are commonplace for the software specialist, which has topped the Street’s revenue and profit estimates in ten straight quarters.
As such, Splunk is broadly expected to report another top- and bottom-line beat Thursday. However, the company’s outlook and its billings forecast will be the most closely watched aspects of the report. The stock has been under pressure recently, falling about 12% one the past six months. It seems despite the fact that the company understands customer behavior and can assess online end-to-end business transactions and deliver strong revenue growth, investors have shifted their focus on the company’s tough comparisons from last year’s fourth quarter.
But not everyone is worried. Citing "increasing clarity from a shift to a recurring revenue model,” Morgan Stanley analyst Keith Weiss recently upgraded Splunk from Equal-weight to Overweight and boosted his price target from $140 to $169. Weiss believes the focus on recurring revenue can lead to more than 25% in annual-recurring-revenue growth. Adding, "Top-line growth is more durable than it appears," while boasting about the company’s competitive product portfolio.
Based on Splunk’s current price of around $124, Weiss’ $169 target assumes additional premiums of 36%. For that value to be realized Splunk on Thursday will need to demonstrate why it is well-positioned to capitalize on the growing adoption of Cloud, data analytics and how it it is expanding its addressable market. And that’s in addition to delivering not only a top and bottom line beat, but also strong Q4 guidance.
For the quarter that ended October, Wall Street expects the Splunk to earn 54 cents per share on revenue of $602.24 million. This compares to the year-ago quarter when earnings came to 38 cents per share on revenue of $480.98 million. For the full year, ending December, earnings are projected to rise 42.8% year over year to $1.90 per share, while revenue of $2.31 billion would mark a 28.4% rise year over year.
In the most recent quarter, Splunk beat on both the top and bottom lines. Not only did Q2 revenue surge 33% year over year, the company beat profit expectations by a whopping 17 cents, reflecting an incredible 275% rise compared to Q2 quarter of 2018. The improved operational metrics were driven in part by a 46% surge in software revenue growth which reached $350 million. Just as impressive, the company provided upside revenue outlook, suggesting it is either taking market share from its competitors or growing its addressable market.
During the quarter, Splunk acquired SaaS cloud monitoring company SignalFx, spending $1.05 billion in cash and stock. On Thursday, aside from plans to sustain its level of performance, analysts will want to know how the company plans to integrate this deal and what type of profits it will yield. The Street is forecasting full-year 2019 earnings to grow by 44%. Overall, Splunk has demonstrated incredible growth over the past couple of years and investors should expect similar to higher results heading into next year, which bodes well for the stock.
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