Analysts React To Splunk's Q3 Beat

Big data facilitating company Splunk Inc 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.

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Posted In: Analyst ColorEarningsNewsGuidancePrice TargetTop StoriesAnalyst RatingsTrading Ideasbig dataBrad ZelnickcloudCredit SuisseJefferiesJohn DiFucciMelissa FranchiMorgan StanleyPhilip WinslowSteve KoenigWedbushWells Fargo
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