Summit Redstone Assumes Buy On Splunk, Sees Compelling Case For M&A

Summit Redstone’s Srini Nandury believes Splunk Inc (NASDAQ: SPLK) is a “compelling” acquisition candidate, given that the company is expected to provide “years of growth” for any potential acquirer.

Nandury reinitiated coverage of the company with a Buy rating, with a price target of $72.

Flexible Platform

“Splunk’s highly flexible platform allows it to continually develop new use cases such as real-time security and IOT, leading to an ever expanding TAM (up from ~$30 billion in 2013 to $50.0 billion in 2017) and providing the company with large headroom to grow for many years to come,” the analyst mentioned.

Nandury expects Splunk to continue to invest in R&D to become an “unstructured” data platform similar to the MS-SQL and Oracle Server platforms for structured data, around which an ecosystem can be built.

Competition

“Competition currently exists from many point products in various applications and use cases, but we do not see any competitor with as comprehensive a platform as Splunks’,” the analyst stated, while adding, “SPLK has the clear lead with its flexible architecture and patented technology that is hard to displace, benefitting the company for years to come.”

Growing TAM

Nandury expects the company’s TAM to continue to expand, given that Splunk started out by providing data insights generated through machines for IT operations but is now offering indexing technology that can be used to analyze data in Security Information and Event Management.

The company also addresses business analytics, IOT and Application Delivery, bringing its total TAM to $45 billion.

In addition, ASPs have also been increasing steadily over the past few quarters, “driven by a higher number of EAA’s during the quarter,” Nandury pointed out.

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