Splunk Posts Wider Loss, Beats on Revs

Zacks

Splunk Inc. (SPLK) reported fiscal first-quarter 2015 loss of 42 cents per share, much wider than the Zacks Consensus Estimate of a loss of 6 cents and year-ago quarter loss of 16 cents per share. Share price plunged 9.51% ($4.76) in after-hours trading.

Revenues

Revenues surged 50.2% year over year to $85.9 million, comfortably beating the Zacks Consensus Estimate of $80.0 million. Strong license sales and maintenance & services revenues primarily drove the better-than-expected year-over-year result.

License sales (59.7% of revenues) jumped 41.8% year over year to $51.3 million. Maintenance & services revenues (40.3% of revenues) increased 64.6% from the year-ago quarter to $34.6 million.

Adoption and implementation of its products within the enterprises is helping the company to generate more revenues. The company also added 400 new customers, which resulted in more than 7,400 customers worldwide. The clientele includes the likes of Overstock.com (OSTK), the U.S. Department of Energy and U.S. Department of Health and Human Services.

During the quarter, Splunk announced the general availability of Splunk Enterprise 6.1, Hunk 6.1 as well as apps for VMware (VMW) and Microsoft Exchange. The company also entered into a partnership with Tableau.

Margins

Gross margin contracted 480 basis points (bps) from the year-ago quarter to 83.5%, primarily due to an unfavorable product mix.  License gross margin remained almost flat on a year-over-year basis, while maintenance & services contracted 930 bps in the quarter.

Splunk continues to invest in research & development (R&D), which jumped 105.6% year over year to $29.7 million in the quarter. Sales & marketing (S&M) expense surged 72.0% from the prior-year quarter to $71.1 million. General & administrative expense increased 101.1% year over year to $21.0 million.

The sharp jump in operating expenses (up 84.0% year over year) hurt profitability in the quarter. Operating loss (including stock-based compensation) was $49.2 million compared with a loss of $15.7 million in the year-ago quarter.

Net loss (including stock-based compensation) was $49.9 million or 42 cents per share compared with a loss of $16.1 million or 16 cents per share in the year-ago quarter.

Balance Sheet and Cash Flow

Splunk exited the first quarter with $667.7 million in cash & cash equivalents. Cash flow from operations was $18.9 million, while free cash flow was $14.7 million.

Guidance

For second-quarter 2015, Splunk expects revenues in the range of $92.0 to $94.0 million. The company expects to report operating loss in the quarter.

For fiscal 2015, revenues are likely to be in the range of $402.0 to $410.0 million (up from $400.0 million expected earlier). The company expects to report break-even operating margin for the fiscal year.

Our Take

We believe that Splunk’s strong product pipeline will continue to boost top-line growth. However, increasing investments for R&D and higher operating cost are expected to drag profitability in the near term. As Splunk continues to explore and expand into new markets, S&M expenditure is expected to increase significantly, thereby hurting margins in the near term.

Moreover, the company continues to face tough competition from established players such as International Business Machines (IBM), which will remain an overhang on the stock.

Splunk has a Zacks Rank #3 (Hold).

Read the Full Research Report on VMW
Read the Full Research Report on IBM
Read the Full Research Report on OSTK
Read the Full Research Report on SPLK


Zacks Investment Research

View Comments (0)