Splunk Slips In Pre-Market As Revenue Outlook Disappoints; Street Stays Bullish

Splunk slightly outperformed second-quarter earnings but missed on the revenue outlook sending shares down in Thursday’s pre-market session.

The stock is declining 1.5% in pre-market trading. Splunk (SPLK) posted a fiscal second-quarter loss of $261.3 million, or $1.64 a share, compared with a loss of $100.9 million, or 67 cents a share, in the year-ago period. The adjusted loss was 33 cents a share, beating the Street consensus by 1 cent.

The data analytics software maker said revenue fell to $491.7 million in the second quarter from $516.6 million in the year-earlier period, missing analysts’ expectations of $520.4 million. Meanwhile, annual recurring revenue (ARR), a metric that shows how much revenue the company can expect based on subscriptions, jumped 50% in the reported quarter to $1.93 billion, exceeding analysts’ estimates for $1.92 billion.

“As organizations continue to adapt to tectonic societal shifts brought on by COVID-19, one thing is constant: the power of data to radically transform business,” said Splunk CEO Doug Merritt. “Splunk’s cloud business continues to accelerate, now representing more than half of our software bookings in the quarter – a major milestone in our cloud journey.

Splunk added that cloud ARR growth accelerated to 89%, or $568 million, far exceeding the company’s expectations.

For the current quarter, the cloud-based enterprise software company forecasts third-quarter revenue between $600 million and $630 million, while analysts had estimated sales of $641.5 million.

Splunk shares have been on a steep winning streak since mid-March taking their year-to-date gain to 45%. Looking ahead, the $229.75 average analyst price target now suggests 6% upside potential over the coming year.

Oppenheimer analyst Shaul Eyal raised his price target to $226 from $190 and reiterated a Buy rating on the stock, saying that robust cloud growth drives strong ARR performance.

“While optically it may seem as if SPLK missed its revenue target, cloud ARR is heading in the right direction which is the important metric investors should focus on,” Eyal wrote in a note to investors. “We expect SPLK to maintain a strong pace of revenue growth for some time to come, driven by growth in its cloud business, and we believe the company should be able to expand margins through operating leverage and efficiency gains.”

The analyst added that the new $226 price target represents 12.9x our FY22E (Jan ’22) revenue of $2.932B.

The rest of the Street is in line with Eyal’s bullish outlook. The Strong Buy analyst consensus boasts 15 Buy ratings versus 2 Hold ratings. (See SPLK stock analysis on TipRanks).

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