Why Is Splunk (SPLK) Up 9.2% Since Last Earnings Report?
It has been about a month since the last earnings report for Splunk (SPLK). Shares have added about 9.2% in that time frame, outperforming 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 drivers.
Splunk Q1 Earnings Beat Estimates on Higher Revenues
Splunk reported impressive first-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 cloud services and cybersecurity domain. Despite macroeconomic headwinds, 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 loss of $196.4 million or a loss of $1.19 per share compared with a net loss of $304.3 million or $1.90 per share in the prior-year quarter. The improved performance was primarily attributable to top-line growth and lower operating expenses.
Non-GAAP net income in the reported quarter was $34.1 million or 18 cents per share against a net loss of $52.1 million or a loss of 32 cents per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 35 cents.
Revenues
Total revenues in first-quarter fiscal 2024 increased to $751.5 million from $674.1 million reported in the prior year. The top line surpassed the consensus estimate of $719 million. Top-line 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 sector.
Cloud services revenues rose to $419.4 million up 30% from $322.9 million in the year-ago quarter. The uptick was propelled by rising demand of its cloud services. License revenues stood at $171.4 million, down from $185.8 million year over year. Net sales from Maintenance and services decreased to $160.6 million from $165.3 million in the year-ago quarter.
Total annual recurring revenues (ARR) were $3.725 billion, up 16% year over year. The company had 810 customers with an ARR of more than $1 million at the end of the first quarter. Cloud ARR increased 29% to $1.815 billion.
Other Details
Gross profit increased to $544.3 million from $471.9 million in the prior-year quarter. Non-GAAP gross margin from cloud services rose 600 basis points year over year to 73.6%, surpassing management’s expectations. Non-GAAP operating income aggregated to $25 million against an operating loss $57.3 million in the prior-year period, with respective margins of 3.3% and a negative 8.5%.
Cash Flow & Liquidity
During the first quarter of fiscal 2024, Splunk generated $491.8 million net cash from operating activities compared to $143.3 million reported in the year-ago quarter. As of April 30, 2023 the company had $801.5 million in cash and cash equivalents with $3,100.9 million long-term debt.
Outlook
For second-quarter fiscal 2024, management estimates total revenues to be in the range of $880-$895 million. Non-GAAP operating margin is projected in the range of 10-12%. Total ARR is expected to be around $3.825 billion. The company expects a negative free cash flow of 15 million in the upcoming quarter.
For fiscal 2024, management updated their previous revenue guidance level as it expects healthy demand trends backed by higher investment in research & development and focus on operational efficiency. The company expects revenues to be approximately $3.9 billion which is at the higher end of the previous guidance level of $3.85-$3.9 billion. Non-GAAP operating margin is anticipated to be within 18%-18.5%, higher than previous estimated range of 16.5-17.5%. Free cash flow is projected between $805 million and $825 million. Total ARR is expected in the range of $4.125 billion and $4.175 billion.
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 8.96% 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 D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Splunk has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Splunk belongs to the Zacks Internet - Software industry. Another stock from the same industry, DoubleVerify Holdings (DV), has gained 16% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.
DoubleVerify reported revenues of $122.59 million in the last reported quarter, representing a year-over-year change of +26.8%. EPS of $0.07 for the same period compares with $0.03 a year ago.
DoubleVerify is expected to post earnings of $0.06 per share for the current quarter, representing no change from the year-ago quarter. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for DoubleVerify. Also, the stock has a VGM Score of D.
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