Splunk Inc SPLK has strong underlying business fundamentals, reflected in its solid growth in annual recurring revenue (ARR), while the company has made strategic moves by investing in its cloud offering, according to Baird.
The Splunk Analyst: Jonathan Ruykhaver upgraded Splunk to Outperform, while raising the price target from $220 to $240.
The Splunk Thesis: Splunk’s business model “remains noisy” and its free cash flows are expected to remain under pressure in the near term due to its shift from perpetual to term licenses, the contracting durations on those term licenses and the shift to annual billing, Ruykhaver said.
He added, however, that the company remains a market leader in security and has achieved impressive cloud growth.
“Cloud ARR has been particularly impressive, accelerating to 82% and 89% YoY growth in F1Q21 and F2Q21, respectively, and total ARR has grown at or above 50% for the last seven quarters,” the analyst wrote in a note. “We believe continued momentum for cloud will be a key driver for Splunk going forward.”
SPLK Price Action: Shares of Splunk were up 3.3% to $181.80 at the time of publication Friday.
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