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Splunk Springs Into 2019 Ready for More Double-Digit Growth

Nicholas Rossolillo, The Motley Fool

At the intersection of big data and "smarter" technology lies Splunk (NASDAQ: SPLK), the data-parsing software service that turns business information into actionable solutions. Making sense of the growing amount of data the digital world is generating is a top priority for many enterprises, helping with a diverse set of needs like streamlining operations and cybersecurity. Splunk recently wrapped up its 2019 fiscal year (which ended at the end of January 2019), demonstrating once again that investing in it is one of the best ways to cash in on the boom of digital data.

A year of rapid growth

Splunk's double-digit growth last year was driven by businesses' continued interest in making use of the otherwise unusable and unwieldy data they generate, but Splunk did its fair share to make the most of the movement as well. Several acquisitions were made, most notably a couple of cybersecurity outfits to boost Splunk's presence in that fast-changing industry; new and updated product rollouts were also made for things like cloud computing and Internet of Things device tracking; and more than 2,000 apps from strategic partners were available on Splunkbase (an app store of sorts for companies) to extend the usefulness of the data analytics software for specific business needs.

The result? Another year of massive sales expansion.

Metric

12 Months Ended Jan. 31, 2019

12 Months Ended Jan. 31, 2018

Change (YOY)

License revenue

$1.03 billion

$741 million

39%

Total revenue

$1.80 billion

$1.31 billion

38%

License gross profit margin

97.8%

98.2%

(0.4 ppt)

Total gross profit margin

80.9%

80.4%

0.5 ppt

Operating profit (loss)

($251 million)

($185 million)

N/A

Adjusted earnings per share

$1.33

$0.96

39%

YOY = year over year. Ppt = percentage point. Data source: Splunk.

Besides new customers signing on -- to the tune of 600 during the fourth quarter alone -- existing customers continue to expand their relationship with Splunk. As a result, Splunk's management team believes it is still in the early innings of its journey. With the new year under way, the company is closing in on some important milestones.

An artist's illustration of data and machine learning. A human silhouette is filled in with computer data screens.

Image source: Getty Images.

Closing in on long-term goals

Some investors may shy away from Splunk because of the large and widening operating losses the company is running. Most of that is due to elevated sales and marketing expense, as well as research and development -- which both increased 32% and 47%, respectively, last year. CEO Doug Merritt explained why: "We're early in our journey and are investing for scale and growth. We're delivering high value to our customers, who are expanding their adoption of Splunk as their platform for data analytics both on-prem and in the cloud."

Thus, the big data company is keeping its foot on the gas and worrying about profits later, although adjusted earnings were in the black and notched a 39% increase after backing out share-based compensation and other one-time items. All that spending is expected to equate to another big year, including Splunk reaching its longtime goal of $2 billion in annual sales by the 2020 fiscal year. Specifically, management said it expects $2.2 billion in revenue in the year ahead and adjusted operating profit margins coming in at 14%.

As the world goes digital, big data is only getting bigger -- which means making sense of that data is also growing. That bodes well for Splunk, and the numbers prove it. This is still a small company, and it's not too late to give this one a look.

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Nicholas Rossolillo and his clients own shares of Splunk. The Motley Fool owns shares of and recommends Splunk. The Motley Fool has a disclosure policy.