Based in San Francisco, California, Splunk (proposed SPLK) originally scheduled a $122 million IPO with a market capitalization of $833 million at a price range mid-point of $9 for Friday, April 20, 2012. [S-1]
The price range has since been raised to $11 to $13. The price range mid-point increased 33% to $12 from $9. SPLK is now expected to trade Thursday April 19 rather than Friday. Managers, Joint Managers: Morgan Stanley; Credit Suisse; J.P. Morgan; BofA.
SPLK provides an innovative software platform that enables organizations to gain real-time operational intelligence (including optimization routines) by harnessing the value of their data. SPLK software collects and indexes data at massive scale, regardless of format or source, and enables users to quickly and easily search, correlate, analyze, monitor and report on this data, all in real-time.
For the year ended January 2012 year revenue increased 83% to $121 million. Gross margin was 91%.
SPLK obviously will go higher, probably much higher from the IPO price, whatever it is. And over time SPLK will most likely always look overpriced.
Splunk provides an innovative software platform that enables organizations to gain real-time operational intelligence (including optimization routines) by harnessing the value of their data. Splunk software collects and indexes data at massive scale, regardless of format or source, and enables users to quickly and easily search, correlate, analyze, monitor and report on this data, all in real-time.
The software is designed to help users in various roles, including IT and business professionals, quickly analyze machine data and realize real-time visibility into and intelligence about their organization's operations. SPLK currently provides Splunk for Enterprise Security and Splunk for PCI (payment card industry) Compliance and have made available, through a controlled preview, Splunk for VMware (VMW).
SPLK was incorporated in California in October 2003 and was reincorporated in Delaware in May 2006.
International Data Corporation estimates that the volume of digital information created and replicated worldwide will grow approximately 45% annually from 1.8 trillion gigabytes in 2011 to 7.9 trillion gigabytes in 2015.
Machine data (SPLK's segment) is one of the fastest growing components of this digital information and comes in an increasing number of formats. The applications, servers, network devices, mobile phones, desktop computers, laptops and various other systems and devices that comprise an organization's IT infrastructure are continuously generating information in a variety of disparate formats relating to application and system performance, user activity, configuration changes, transactions, security alerts, error messages and other time-series information.
As of January 31, 2012, Splunk had over 3,700 customers, including a majority of the Fortune 100.
RECURRING REVENUE MODEL
Usage fee: SPLK bases license fees on the estimated daily data indexing capacity customers require.
Software fee: SPLK generally recognizes the license fee portion of software upfront. As a result, the timing of when SPLK enters into large perpetual licenses may lead to fluctuations in revenues and operating results because expenses are largely fixed in the short-term.
Prospective customers can download a trial software version that provides a full set of features but limited data indexing capacity. Following the 60-day trial period, prospective customers can purchase a license for the product or continue using the product with reduced features and limited data indexing capacity.
While SPLK believes that there is a significant market opportunity for software that provides operational intelligence, this market is largely new and unproven.
As a result, SPLK often must educate prospective customers about the value of products, which can result in lengthy sales cycles, particularly for larger prospective customers, as well as the incurrence of significant marketing expenses.
Prospective customers may view purchases of our software as discretionary when compared to more traditional IT applications, and as a result, our sales may be adversely affected by downturns in general economic conditions more quickly and dramatically than other software providers.
In general SPLK achieves 40% of its yearly revenue in the first half, 60% second half, and the 4th quarter is usually the strongest.
As of March 31, 2012, SPLK had two issued U.S. patents covering its machine data technology. SPLK also had one provisional patent application pending and eleven utility patent applications pending for examination in the United States.
SPLK also had six utility patent applications pending for examination in non-U.S. jurisdictions, and eight pending Patent Cooperation Treaty utility patent applications, all of which are counterparts of SPLK's U.S. utility patent applications.
SPLK competes against a variety of large software vendors and smaller specialized companies, open source initiatives and custom development efforts, which provide solutions in the specific markets we address. Principal competitors include:
- IT departments of potential customers which have undertaken custom software development efforts to analyze and manage their machine data;
- Security and systems management vendors, including BMC Software (BMC), CA (CA), Compuware (CPWR), HP (HPQ), IBM (IBM), Intel (INTC), Microsoft (MSFT) and Quest Software;
- Web analytics vendors, including Adobe Systems (ADBE), Google (GOOG), IBM (IBM) and Webtrends;
- Business intelligence vendors, including EMC (EMC), IBM (IBM), Oracle (ORCL) and SAP (SAP);
- Companies targeting the big data market by commercializing open source software, such as Hadoop; and
- Small specialized vendors, which provide complementary solutions in enterprise data analytics, data warehousing and big data technologies that may compete with Splunk's software.
As of January 31, 2012, SPLK had 463 employees.
Venture capital firms own 70% of SLPK pre-IPO and include Sevin Rosen (20.4%), August Capital (20.4%), JK & B Capital (17.6%) and Ignition Partners (12.1%)
USE OF PROCEEDS
At the original price range mid-point SPLK expected to net $101 million from the sale of 12.5 million shares. Shareholders intend to sell 1 million shares.
SPLK allocated the IPO proceeds to working capital and general corporate purposes.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.