Splunk Guidance Could Be Conservative, Morgan Stanley Predicts
- Splunk Inc (NASDAQ: SPLK) shares touched a high of $74 on July 23, but are down 21 percent in the last three months.
- Morgan Stanley’s Keith Weiss maintained an Overweight rating on the company.
- The company’s compelling value proposition and recent investments are expected to drive growth in the future, Weiss believes.
Analyst Keith Weiss mentioned that Splunk’s analyst event highlighted the “company’s compelling value prop (better performance, more use cases and a large ecosystem).” The recent sales and distribution investments by the company are expected to drive growth in 2H and FY17.
There is a debate around Splunk’s top-line growth, due to the ramping contribution from ratable contracts, including EAAs and Splunk Cloud, which impacts both billings and revenues.
Weiss noted that “unlimited EAAs will enable standardization in large enterprise deployments” but only a small proportion of the base has or will adopt EAAs. This means Splunk “has a long runaway to continue to expand within its base,” he added.
Weiss expects bookings growth at Splunk to be stronger than its billings growth as “ramping EAAs drives off-balance sheet commitments.” The 42 percent growth in the company’s billings growth in 2Q provides the “best view of annualized growth,” the Morgan Stanley report stated.
Weiss expects the “mix of ratable,” which stood at 41 percent in F2Q as compared to the 35-40 percent guidance for FY15, to stabilize in FY17, thus eroding the headwinds to the company’s top-line growth.
The company’s expectations of a decline in its sales productivity in 2H are likely to prove conservative and thus boost the estimates and the multiple, Weiss mentioned.
Latest Ratings for SPLK
|Oct 2016||Piper Jaffray||Initiates Coverage On||Overweight|
|Oct 2016||Guggenheim Securities||Downgrades||Buy||Neutral|
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