Splunk (SPLK) Up 1% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Splunk (SPLK). Shares have added about 1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Splunk due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Splunk Beats Q3 Earnings Estimates on Solid Revenues
Splunk reported solid third-quarter fiscal 2024 results, with the bottom and the top line beating the respective Zack Consensus Estimate. The company’s expense-control strategy and focus on improving operational efficiency supported the bottom line. Splunk is witnessing healthy traction in the cloud business accounting for the bulk of total annual recurring revenues (ARR). The company reported higher revenues year over year, driven by rising customer engagements, continuous innovation and a robust product portfolio.
Net Income
On a GAAP basis, the company incurred a net income of $96.9 million or 55 cents per share against a net loss of $32.6 million or a loss of 20 cents per share in the prior-year quarter. The improved performance was primarily attributable to top-line growth.
Non-GAAP net income in the reported quarter was $283.5 million or $1.55 per share, which beat the Zacks Consensus Estimate by 43 cents.
Revenues
Total revenues in third-quarter fiscal 2024 increased to $1,067.4 million from $929.8 million in the prior year. The top line surpassed the consensus estimate of $1,028 million. The revenue growth was driven by positive demand trends in cloud services, cybersecurity and observability domains. Backed by its enterprise scale and unified product portfolio, Splunk witnessed significant customer additions and several project wins in the public and private sectors.
Cloud services revenues rose to $469.4 million from $374 million in the year-ago quarter. The uptick was propelled by rising demand for its cloud services. License revenues were $429.4 million, up from $383.6 million. Net sales from Maintenance and services was $172.2 million compared with $168.6 million in the year-ago quarter.
Total ARR was $4 billion, up 15% year over year. The company had 851 customers with an ARR of more than $1 million at the end of the third quarter. Cloud ARR increased 26% year over year to $2 billion.
Other Details
Gross profit increased to $857.4 million from $728 million in the prior-year quarter. Non-GAAP gross margin from cloud services reached an all-time high of 74.6%, surpassing management’s expectations. Non-GAAP operating income aggregated $331.6 million compared with $198.4 million in the prior-year period, with respective margins of 31.1% and 21.3%.
Cash Flow & Liquidity
During the first nine months of fiscal 2024, Splunk generated $587 million net cash from operating activities compared with $173.6 million in the year-ago period. As of Oct 31, 2023, the company had $928 million in cash and cash equivalents with $3,104.9 million in long-term debt.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
The consensus estimate has shifted 21.81% due to these changes.
VGM Scores
At this time, Splunk has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Splunk has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Splunk is part of the Zacks Internet - Software industry. Over the past month, Palo Alto Networks (PANW), a stock from the same industry, has gained 3%. The company reported its results for the quarter ended October 2023 more than a month ago.
Palo Alto reported revenues of $1.88 billion in the last reported quarter, representing a year-over-year change of +20.1%. EPS of $1.38 for the same period compares with $0.83 a year ago.
Palo Alto is expected to post earnings of $1.30 per share for the current quarter, representing a year-over-year change of +23.8%. Over the last 30 days, the Zacks Consensus Estimate has changed +5.1%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Palo Alto. Also, the stock has a VGM Score of B.
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