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Summary

  • Big data is still an early opportunity.
  • Tableau, Splunk and Oracle growth metrics compared.
  • Tableau and Splunk partnership – a powerful combination.

Big Data has received a lot of attention recently, and for good reason. Every day, more and more data is being generated, and companies are eager to understand how the information can improve their business.

There are many companies in the big data space in one form or another. This article is going to focus on two of the more recent IPOs, Tableau (NYSE:DATA) and Splunk (NASDAQ:SPLK). Both companies have been delivering impressive sales growth since going public, and continue to invest heavily in their businesses. As a point of reference, this article will compare the financial performance of DATA and SPLK with database leader Oracle (NYSE:ORCL).

Readers may already be aware DATA and SPLK have recently formed a partnership. This could turn out to be good news for investors, as both companies appear to be executing well on market opportunities. SPLK is viewed as a premier solution for collecting and organizing data (the platform), and DATA is heralded as having developed an intuitive, powerful and quick method for displaying the data in meaningful ways (visual analytics tool).

The demand for new database solutions appears to be high, but so far, most deployments from both companies are user or department-specific. It appears they have yet to make significant inroads into enterprise-wide deployments currently owned by companies like Oracle, IBM (NYSE:IBM), Microsoft (NASDAQ:MSFT) and others.

Both DATA and SPLK have reported a full year of financial performance, so let's take a look at how the numbers stack up with the database king ORCL. We start by looking at the top line sales growth for all three companies over the last four quarters:

Sales Last 4 Qtrs.

Latest Qtr.

2-Qs Back

3-Qs Back

4-Qs Back

DATA

95%

90%

72%

62%

SPLK

53%

51%

50%

54%

ORCL

4%

2%

2%

0%

Data provided by MarketSmith

Few technology companies can lay claim to the sales growth DATA is currently experiencing, and SPLK is not far behind. There is little doubt it becomes more difficult to grow top line revenue when you become the size of a company like ORCL. Still, with all the money it spent on acquisitions in recent years, you would expect more top line growth.

Next, we turn our attention to bottom line growth.

EPS Growth Last 4 Qtrs.

Latest Qtr.

2-Qs Back

3-Qs Back

4-Qs Back

DATA

400%

300%

-67%

N/A

SPLK

0%

#+200

N/A

N/A

ORCL

5%

8%

11%

6%

Data provided by MarketSmith

# - Year-ago quarter was negative

Compared to Oracle, who has delivered small but consistent earnings growth over the last year, DATA and SPLK have a long way to go. Both DATA and SPLK have just started to generate positive earnings, with DATA doing a better job of dropping money to the bottom line over the last year.

For another look at earnings, we can compare the following metrics:

 

DATA

SPLK

ORCL

EPS Growth Rate

66%

N/A

17%

Earnings Stability

62

 

5

Data provided by MarketSmith

EPS Growth Rate is a proprietary MarketSmith measure of earnings growth over several historical periods. Earnings Stability is a proprietary MarketSmith measure that ranks companies from 1-99, with lower scores representing a more stable earnings history.

Here again, we see a more mature earnings picture in ORCL. DATA and SPLK are investing heavily in their business, and are not expected to generate meaningful earnings growth for the next couple of years.

The next set of data shows how both DATA and SPLK are pouring money back into the company via R&D. We also see a much lower Annual Pre-Tax Margin compared to ORCL.

 

DATA

SPLK

ORCL

Return on Equity

13%

N/A

29%

Debt Level

0%

0%

41%

% R&D

26.10%

21.00%

13.00%

Annual Pre-Tax Margin

7.5

-0.8

45.3

Cash Flow vs. EPS % Last Year

109.1

2,481.20

9.8

Data provided by MarketSmith

The large Cash Flow vs. EPS % Last Year for SPLK is not impressive considering it lost money over the last year.

A few other helpful metrics:

 

DATA

SPLK

ORCL

Current P/E Ratio

299

N/A

15

Market Cap

$4.75 Bil

$7.48 Bil

$180.01 Bil

Sales Ttl Last 4 Qtrs.

$232.5 Mil

$302.3 Mil

$37.9 Bil

EPS Ttl Last 4 Qtrs.

$0.26

($0.03)

$2.83

Next Year EPS Estimates

($0.23)

N/A

$2.91

Data provided by MarketSmith

Clearly, DATA and SPLK have been able to attract customers and propel themselves into mid-cap stocks, based on rapid sales growth in a hot space with tremendous potential. If either company is able to attain one-third of ORCL's current market cap through organic growth, they would grow by a factor between 8-10. This is why investing in this type of company is so attractive.

The explosive sales growth DATA and SPLK have experienced does come at a price. Both trade at high valuations. The dynamic place in technology these disruptive companies are focused on represent huge growth curves, and investors are rewarding their strong top line growth with high valuations.

However, both companies have a lot of work ahead. DATA and SPLK's current financial position might explain part of the reason why both stocks have been hammered so hard in the current pullback. DATA is down around 30% from 52-week highs and SPLK 42%. The expiration of shareholder lock-up expirations and recent follow-on stock offerings by both companies may also be impacting the current stock price. Those are just a couple of the risks often associated with young public companies.

Another risk associated with both DATA and SPLK has to do with their underlying technology. Large enterprise database deployments are complex, and customer needs varied. It is possible the current technology set of DATA and SPLK will be limited in their ability to expand in the enterprise. It is also a competitive environment, with many companies, some very large, focused on delivering big data solutions, which could limit growth for DATA and SPLK.

The recently announced partnership between DATA and SPLK may help both companies overcome the big challenge of continuing to expand deployments beyond specific workers and departments. Integration with IT departments and an enterprise sales strategy will become a more important part of future growth for both companies. SPLK may have an advantage here, based on the success it has had in the IT security market. DATA, on the other hand, appears to have a larger customer base (17,000 vs. 7,000 for SPLK). It may turn out the recently announced partnership is what represents the next leg of growth for both companies.

It appears both DATA and SPLK have arrived at a time when the demands of database customers has increased significantly and are expected to continue to grow for years to come. Both companies have delivered impressive top line growth, and their recently announced partnership may signal their confidence in a bright future.

Source: Tableau & Splunk: Do Price Pullbacks Represent Good Entry Points?

Additional disclosure: No investment recommendations have been made in this article. Investing involves risk including the loss of capital. Conduct your own research before making an investment decision.