Second Quarter Results
Splunk reported second-quarter revenues for its fiscal 2013 of $44.5 million, up 71% on the year. License revenues grew 61% to $30.2 million, while maintenance and service revenues doubled to $14.3 million.
The company reported a GAAP net loss of $4.6 million, or $0.05 per share. Excluding stock-based compensation of $3.9 million, the net loss came in at $0.7 million, or $0.01 per share. On average, analysts expected the company to lose $0.04 per share on a non-GAAP basis.
CEO and Chairman Godfrey Sullivan commented on the results, "The momentum that we realized in our first quarter of fiscal 2013 has continued into our second quarter. We added nearly 400 customers and are equally excited about the expanded use of Splunk in our customer base."
During the quarter, the company signed up some big new customers including, Allianz, ING Direct, Monster Worldwide, Pixar Animation Studios and Salesforce.com.
Outlook
For the current third quarter, Splunk anticipates revenues between $45-$47 million. Non-GAAP operating margin is expected to come in between minus 4% and 5%. This compares to second-quarter negative operating margins of 10.2%.
For the full year of its fiscal year 2013, Splunk anticipates revenues of $183-$186 million. Non-GAAP operating margins are expected to come in between minus 2% and 3%. Just three months ago, Splunk guided for annual revenues of $174-$177 million, and negative operating margins of 4%-5%.
Valuation
Splunk ended the second quarter with $268 million in cash and equivalents. The company operates without debt, for a generous cash position. For the first six months of the year, revenues came in at $81.7 million. Splunk reported operating losses of $10.7 million, or $0.17 per share.
Factoring in a 15% jump in after-hours trading, the market values Splunk around $3.3 billion. Excluding the net cash position, operating assets are valued at $3.0 billion. This values Splunk at 16 times annual revenues. For the full year, Splunk is expected to lose money.
Most competitors in the "big data" analysis industry trade at high valuation multiples. Salesforce.com (CRM) trades at almost 9 times trailing annual revenues, NetSuite (N) at 16 times. Both companies are expected to lose money as well.
Investment Thesis
Splunk's performance as a public company has been astonishing. In April of this year, the company went public for $17 per share. The offer price was revised significantly upwards from an initial price range of $11-$13 per share.
Shares quickly advanced to the $30 mark, where shares have been trading in recent months. The after-hours print of $35 is approaching the all-time highs of $37.
Investors are relieved that Splunk managed to combine its spectacular revenue growth with improved operating margins. Furthermore, the upward revised guidance for the full year implies revenue acceleration and a continued improvement in margins.
I have to reiterate my normal investment stance with companies like these. Investments can not be justified from a traditional conservative valuation standpoint. On the other hand, phenomenally high growth brings valuation multiples down quickly. Shorting names like Splunk is too dangerous as large technology companies are still looking to make acquisitions in the hot "data" industry.
I will stay on the sidelines, being fully aware that I might lose out on even more short term returns.
Disclosure: I have no positions in any stocks mentioned, and
no plans to initiate any positions within the next 72 hours. I wrote this
article myself, and it expresses my own opinions. I am not receiving
compensation for it (other than from Seeking Alpha). I have no business
relationship with any company whose stock is mentioned in this
article.
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Salesforce is not a big data company, but partner with several. Splunk is unique in the space.
"New license, expansion, and upgrade customers include: Allianz Insurance (UK), Bechtel, Hughes Network Systems, ING Direct, Korea Food and Drug Agency, Monster Worldwide, New Zealand Stock Exchange, Ohio State University, Orange France, O'Reilly Media, Pennsylvania Higher Education Assistance Agency, Pixar Animation Studios, Salesforce.com, Shazam (UK), Telstra, Virginia Tech, and the U.S. Postal Service."