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Splunk (SPLK) Q3 Report on Deck: Will Growth Narrative Continue?

Christopher Vargas

Splunk SPLK is set to report its third quarter performance after the market closes on Thursday, November 21. The stock has been on a roller coaster ride in 2019 but is currently up around 19% year-to-date. The data analytics company hopes to have a breakthrough performance in Q3 that can further cement its growth potential.

The intrinsic value that data analytics brings has Wall Street interested in the young company’s trajectory. Splunk has also employed an aggressive acquisition campaign that has yielded mixed feelings from investors. Let’s take a closer look at the company and what to expect from Splunk in Q3.

Acquisition Campaign to Continue

Splunk is coming off a second quarter where it reported strong financials but left investors worried about the company’s significantly reduced cash flow expectations. The firm followed its Q2 report by acquiring stealth-mode software-as-a-service specialist, Omnition, less than two weeks later, which exacerbated investor worries. Despite the pullback, Splunk said it doesn’t plan to slow down anytime soon.

Splunk CEO, Doug Merritt, explained his acquisition ambitions by stating “We are actively always looking for additional technologies that can add to our fold and help our customers. I would anticipate that there will be more [acquisitions] in the future.”

Merritt sees the acquisitions as Splunk better equipping itself to service any needs that customers may have in the data realm. Splunk targets companies that can complement its existing product portfolio and accelerate its market leadership.

Merritt went on to comment that “Splunk is on a mission to become nothing short of the strategic technology partner to the world's most data savvy enterprises.” Splunk helps companies turn massive amounts of unusable data into actionable insights. Everything from manufacturing facilities to call centers to payment processing systems generate data, and Splunk helps businesses analyze that data which can help them make the necessary adjustments in their operations.

Outlook

Data analytics has been in the limelight in 2019 thanks in part to large acquisitions made by Google GOOGL and Salesforce.com CRM. Splunk’s strong position in the space makes it an enticing bet for those interested in the industry.

The company boasts more than 18,000 enterprise customers, including 92 members of the Fortune 100. Splunk helps customers like Domino’s DPZ better develop their e-commerce and customer experience initiatives. As more companies move their operations to the e-commerce space, companies like Splunk will continue to be in demand.

Splunk’s recent acquisitions require a level of trust in the management to make the right decisions at the right time, which may discourage some. However, as Splunk's renewable cloud offerings continue to gain steam, it could mean higher gross margins and more predictable revenue streams over the long term.

Our Q3 consensus estimates call for a bottom-line hike of 39.47% to $0.53 per share and for net sales to climb 25.45% to $603.41 million. Licensing revenue is projected to grow 23.7% to $345.7 million and maintenance and services are estimated to jump over 27% to $257.5 million. Our full fiscal year estimates forecast EPS to soar over 39% and for net revenue to gain 28.1%.

Bottom Line

For investors that feel Splunk’s management is leading the company into the future of the data industry, the recent pullback might provide a solid buying opportunity. The company’s top and bottom line momentum is expected to continue in its Q3 report and could potentially quell investors’ worries about its acquisitions.

Splunk has an average EPS surprise of 77.07% over the past four quarters and sports a Zacks Rank #3 (Hold).

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