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Analysts React To Splunk's Q3 Beat

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Analysts React To Splunk's Q3 Beat
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Big data facilitating company Splunk Inc (NASDAQ: SPLK) reported Thursday a top- and bottom-line beat in its third-quarter results while management lifted both its 2019 and 2020 sales outlook.

Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

  • Wells Fargo's Philip Winslow maintains an Outperform rating on Splunk with an unchanged $145 price target.
  • Credit Suisse's Brad Zelnick maintains at Outperform, unchanged $130 price target.
  • Morgan Stanley's Melissa Franchi maintains at Equal-weight, unchanged $110 price target.
  • Jefferies' John DiFucci maintains at Buy, unchanged $137 price target.
  • Wedbush's Steve Koenig maintains at Outperform, price target lifted from $130 to $136.

Shares of Splunk were trading higher by 7 percent to $101.63 Friday afternoon.

Wells Fargo: Strong Momentum

Splunk's third quarter showed continued momentum across multiple metrics, Winslow said in a note. These include acceleration of license revenue growth from 36.3 percent in the second quarter to 44.3 percent and marks a return to a more normalized level of growth and the fact that the company signed 111 deals worth more than $1 million.

Splunk Cloud revenue rose from $39 million last quarter to $46 million, while the annual recurring revenue (ARR) nearly doubled from a year ago to $200 million.

Credit Suisse: Splunk Offers Strategic Value

Splunk strong earnings print was broad-based with strength in the Public Sector segment, Zelnick said. The report signals the company continues to address an "increasingly important pillar" of enterprise security strategy and Splunk boasts a "unique leadership" position and a provider of strategic value. It also suggests the company has significant runway ahead in IT Service Intelligence, which is performing well but still has a very low attach rate.

Morgan Stanley: Some Concerns

Splunk's third quarter is highlighted by a healthy growth rate in license revenue (adjusting for elongated duration and a move to subscriptions) and the Cloud ARR nearly doubling to $200 million, Franchi said. Some metrics are a concern, however, including customer additions "staying stubbornly low" at just 500 per quarter and short-term deferred revenue rose just 2 percent quarter-over-quarter and fell well short of consensus estimates.

Management's revised fiscal 2020 revenue guidance implies 24-percent year-over-year growth, which marks a deceleration from 33 percent in fiscal 2019.

Related Link: The Street Reaction To Splunk's Q2

Jefferies: Headwinds And Tailwinds

Splunk's on-premise business has a tailwind ahead in terms of longer duration, but at the same time fewer perpetual contracts serves as a headwind, DiFucci said. The company estimates the year-to-date tailwind from on-premise has been around $40 million, while the strategic shift to renewable contracts (including cloud revenue) represents a $43 million headwind.

Wedbush: Positive Guidance

Splunk's fiscal 2020 revenue guidance of $2.15 billion came in better than the $100 million lift Wedbush modeled, Koenig said. If the company can sustain the momentum seen in the third quarter, there's reason to believe management is being conservative in its outlook.

Latest Ratings for SPLK

DateFirmActionFromTo
Nov 2018BMO CapitalMaintainsOutperformOutperform
Nov 2018BernsteinDowngradesOutperformMarket Perform
Oct 2018KeyBancMaintainsOverweightOverweight

View More Analyst Ratings for SPLK
View the Latest Analyst Ratings

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