7/30/2023 0 Comments Splunk stock outlook![]() The selloff certainly can continue for months as the reopening brings some of these trades back to earth but it really just takes one stock to ignite the sector. The selloff has been robust and sustained for some of the popular names like VMware ( VMW) and ServiceNow ( NOW) have recently hit headwinds but there have been some notable exceptions like Datadog ( DDOG) which is looking extremely strong right now. This is likely because the pandemic trade had pushed them to elevated levels. Middle tier cloud-based dashboard providers like Splunk are having a lukewarm to bad year. In the end, Splunk is a company with a blended gross margin of 72% and a 39% year-over-year increase of its annualized recurring revenues, it shouldn’t be too long until we see Splunk being profitable again. Unfortunately for shareholders, it is a costly transition, which has been a drag on revenues as costs begin to mount. Splunk is currently transitioning to a Cloud-based platform is a wonderful investment for the future as it allows the company to fully realize its SaaS subscription model. It is important to note why this revenue drop off is happening to a company that has been profitable before in the past and manages to keep their clients and make them pay more. Source: Seeking Alpha The Cost Of The Cloud Early indications are that this could continue once again through 2022, though analyst revenue projections are positive. On a negative note, this coincided with a steep dropoff in revenue year over year in the fiscal year 2021. This means that the company is not only keeping most of its clients, but those clients are paying an average of 29% more for the rest of this year. It increases whenever active customers increase their usage, expand their product usage to new applications or adopt a new product. Splunk tracks performance in this area is by measuring the dollar-based net retention rate for active customers. *Dollar-based net retention - Splunk's ability to drive growth and generate incremental revenue hinges greatly on its ability to maintain and expand profitable relationships with its existing consumer base. On the positive side, the net retention rate is through the roof for this company, remaining north of 129% over the past five quarters. The cloud however is billed by client usage which unlocks a lot of value for shareholders as the company isn't capped to a fixed determined largely by competitors but instead they win a contract and the customer pays more as Splunk's dashboard adds more value to their business. The 'old school' option is the on premise option which is offered with the traditional term contract. That is, the customers try cloud for one aspect of their business and quickly incorporate it to different use cases across the business for the synergy benefits. Profitable relationships usually start with a small use case and then there is customer satisfaction-driven growth across the client's company. ![]() The challenge with cloud adoption is many companies don't seem to fully understand it off the bat. They data visualization and big data options in particular stand out versus traditional ERP solutions like SAP ( SAP) but they are much more than an ERP platform and Oracle's ( ORCL) cloud fusion pl atform (discussed here) seems to be the better option for ERP. They offer on premise and cloud-based solutions for a variety of use cases ranging from data indexing and ERP type options to cyber security. Add cybersecurity company ZScaler, as well as firms like Accenture and Deloitte, and you can begin to see an ecosystem that millions of new clients cannot live without. AWS, Google Cloud, and Cisco all use Splunk within their infrastructure to help clients remain agile and cost-effective. Splunk has aligned itself as a strategic partner to some of the largest names in the data industry. Today we will look at how the cloud adoption secular trends are driving Splunk's business decisions and explore what investors can expect to see over the medium term. ![]() The company is in a 2-year-long journey to incorporate cloud services and the transition has brought the stock to relatively low levels. Splunk certainly has the respect of the industry after it once again was named the industry leader in SIEM or Security Information and Event Management by Gartner Research for the eighth time. Splunk was founded back in 2003 and is currently based out of San Francisco, California, although the company operates at a number of locations across North America, Europe, the Middle East, and Asia. Splunk (NASDAQ: NASDAQ: SPLK) is a leading data analytics and cybersecurity software platform for enterprise solutions.
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