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, Finro (141 clicks)
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Summary

  • After disappointing first-quarter results and full-year guidance, Splunk stock price dropped to a 52-week low.
  • Splunk announced new partnerships with Symantec and Tableau to offer a comprehensive big data analysis solution.
  • New partnerships support the company’s strategic business model and will partially improve revenues, but can they help to stop the stock price decline?

Splunk (NASDAQ:SPLK), a big data analysis and mapping software developer, reported its first-quarter earnings for the year on May 29. Splunk stock plunged 16% to $41.86 after the company provided disappointing results, with higher operating losses and lower growth rates than provided in the previous quarter. Investors are concerned with the growth rate and with the company's ability to scale its business and increase headcount successfully without impacting execution or profitability. This decline in stock price is part of a 60% drop since the $95.5 high in February. Can the new partnerships be the catalysts for a stock upside?

Gartner introduced the term big data in 2001 to define an amount of data so large and complex that it can hardly be accessed and used efficiently. Many companies develop software tools to map and analyze different aspects of big data to make it accessible and usable. For example, Varonis (NASDAQ:VRNS) develops tools for human-generated data, Splunk develops tools for machine-generated data, Tableau (NYSE:DATA) develops software solutions for visual analysis and presentation of big data, Symantec (NASDAQ:SYMC) provides security solutions, and SAS provides statistical and visual analysis.

At the beginning of February, Gartner forecast that by 2016, 25 percent of large global companies will have adopted big data analytics for at least one security or fraud detection use case. Gartner's vice president, Avivah Litan, said that enterprises can achieve significant savings in time and money when using big data analytics to stop crime and security infractions by stopping losses and increasing productivity. Gartner's forecast, together with IDC's forecast that digital data will grow from 130 exabytes (1 exabyte = 1 million terabytes) in 2005 to 40,000 exabytes in 2020 incorporates an opportunity to benefit from these trends. The Splunk-Symantec partnership that was announced on February 28 aimed to benefit from that growth opportunity by combining big data analysis and security services. The partnership will provide corporations with a solution to investigate incidents and detect advanced threats through big data analysis tools. This partnership possesses a potential revenue growth opportunity for Splunk that needs to be translated into dollars, allowing the company to return to its past growth rates.

The Splunk-Symantec partnership is another part of Splunk's strategy to enable its customers to unlock great potential in other areas using its solutions. Splunk already has a few software solutions in place that optimize data management in various environments and applications. For example:

  1. Splunk App for VMWare (NYSE:VMW) provides operational visibility into a virtual environment, and includes features customized to drill data from the NetApp (NASDAQ:NTAP) environment.
  2. Splunk App for Microsoft (NASDAQ:MSFT) Exchange provides real-time visibility into the Microsoft Exchange environment.

Adding Symantec security capabilities to its portfolio can be an attractive complementary feature that can attract new customers and be translated into additional licenses and higher revenues.

As part of its journey to increase revenues and find new growth engines, on March 5, Splunk announced a new strategic partnership with Tableau to integrate visual analysis and real-time machine-generated data. Splunk's senior vice president of Products, Guido Schroeder, said that the alliance with Tableau extends the value that Splunk software unlocks in machine data. Using Tableau to visualize structured data with machine data in Splunk will enable people to gain new business insights. It is still too early to know whether this strategic partnership will be translated into revenues, but it clearly makes sense for Splunk's and Tableau's customers. The new solution is relatively simple. The use of an ODBC driver to link between Splunk data and Tableau capabilities will enable customers to benefit from both companies' comparative advantage. Although it is too early to judge this partnership, it seems that this solution alone will not increase revenues drastically, as customers theoretically could create a similar solution in-house, whether they use Oracle (NYSE:ORCL), SAS, or Splunk platforms. However, customers looking for a comprehensive and simple solution and who do not want to spend the extra time and money developing the feature can benefit from it if they are Splunk customers. Although the Tableau feature seems useful, it seems more a nice-to-have feature than the wow feature that will make customers transfer from other platforms to Splunk.

Conclusions

A promising big data software developer, Splunk experienced some tough months after releasing lower-than-expected results and guidance. The company continues to maintain its existing products that enhance VMWare, NetApp, and Microsoft products, while looking for new opportunities. To drive higher revenues, Splunk is looking for new growth engines, and has announced two new partnerships with Symantec and Tableau. Although the Tableau feature seems nice, I can't see customers shifting to Splunk solely due to that. However, the Symantec partnership that adds a security capability to Splunk big data analysis can drive higher revenues. Taking into consideration IDC's forecast for an increase in digital data and Gartner's forecast for big data security demand, I believe that the Symantec partnership could generate higher revenues for Splunk. Having said that, I am not sure it will be enough to gain investors' trust again and stop the stock decline. Investors in the big data market want to see revenue growth, and unless the company presents high growth rates again in the next earnings release, the stock will not return to February's highs. I will follow up in the next quarter.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. Information provided in this article is for informational purposes only and should not be regarded as investment advice or a recommendation regarding any particular security or course of action. This information is the writer's personal opinion about the companies mentioned in the article. Investors should conduct their own due diligence and consult with a registered financial adviser before making any investment decision. Lior Ronen and Finro Financial Consulting and Analysis are not registered financial advisers and shall not have any liability for any damages of any kind whatsoever relating to this material. By accepting this material, you acknowledge, understand and accept the foregoing.

Source: Will Latest Partnerships With Symantec And Tableau Help Splunk Stop Stock Price Decline?