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Splunk (SPLK) to Report Q3 Earnings: Factors Setting the Tone

Aniruddha Ganguly

Splunk SPLK is set to report third-quarter fiscal 2020 results on Nov 21.

For the quarter, the Zacks Consensus Estimate for earnings has increased by a penny to 53 cents over the past 30 days, indicating growth of 39.5% from the year-ago quarter’s reported figure.

For third-quarter fiscal 2020, Splunk expects revenues of roughly $600 million. The consensus mark for revenues currently stands at $603.4 million, suggesting an increase of 25.5% from the year-ago quarter’s reported figure.

Notably, the company’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average positive surprise being 77.1%.

Moreover, Splunk’s earnings growth rate on a year-over-year basis improved in the last three reported quarters. However, this didn’t positively impact the share price movement, primarily due to faltering revenue growth rate over the same period.  

Splunk’s shares have returned 13.6% on a year-to-date basis compared with the industry’s growth of 17%.

Year-to-Date Performance


 

Let’s see how things are shaping up for this announcement.

Key Factors to Consider

Splunk’s portfolio strength is not only helping it win new customers but also expand into the existing customer base. Solid demand for the company’s enterprise, security and cloud solutions is expected to have driven the top line in the to-be-reported quarter.
 

Splunk Inc. Price and EPS Surprise

Splunk Inc. Price and EPS Surprise

Splunk Inc. price-eps-surprise | Splunk Inc. Quote

 

Notably, Splunk added more than 500 new enterprise customers in second-quarter fiscal 2020.

Additionally, Splunk’s solid partner base, comprising the likes of Amazon Web Services (AWS), Accenture, Cisco and Symantec, has been a key catalyst. Integration of its products in partner solutions is expected to have enhanced the company’s exposure, particularly among enterprise customers.

The top line is expected to reflect the impact of an expanding customer base, courtesy of a growing partner ecosystem.

Further, cloud revenues soared 80% year over year to $70.5 million in the last reported quarter. The momentum is expected to have continued in the third quarter on the back of increased utilization of cloud-based services.

Moreover, Splunk continues its transition to a renewable model (85% of the product mix for fiscal 2020), which is expected to keep driving the top line.

However, the transition is expected to negatively impact operating cash flow. Additionally, increasing cloud revenues in the product mix are expected to have kept margins under pressure in the to-be-reported quarter.

Splunk Completes SignalFx Acquisition

On Oct 2, Splunk announced that it has completed the acquisition of SignalFx, a dominant SaaS provider in real-time monitoring and metrics for cloud infrastructure, microservices and applications.

Management believes that the acquisition will make the company a leader in cloud monitoring and application performance monitoring for organizations transitioning to the cloud.

What Our Model Says

According to the Zacks model, a company with a positive Earnings ESP along with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates.

Splunk carries a Zacks Rank #3 and an Earnings ESP of +2.86%, which makes us confident of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks That Warrant a Look

Here are three more stocks you may want to consider, as our model shows that these have the right combination of elements to deliver an earnings beat this season.

Adobe Systems ADBE has an Earnings ESP of +0.12% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Okta OKTA has an Earnings ESP of +1.82% and a Zacks Rank #3.

Momo MOMO has an Earnings ESP of +3.94% and a Zacks Rank #3.


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Splunk Inc. (SPLK) : Free Stock Analysis Report
 
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