Splunk: Not Yet Interesting Despite A 16% Sell-Off

| About: Splunk Inc. (SPLK)

Shares of Splunk (NASDAQ:SPLK) the provider of software enabling users to analyze their data in real time, took a beating on Friday after the copmany published its first quarte results. Shares fell more than 16% to $27.24

First Quarter Results

On Thursday the company announced its first quarter results for the period ending on April 30th. First quarter revenue rose 80% to $37.2 million, ahead of analysts consensus of $34 million. License revenues rose 68% to $24.4 million while maintenance and service revenues increased by 110% to $12.8 million. Splunk reported an operating loss of $6.2 million vs. a loss of $1.7 million last year as costs rose across the board.

The company reported a GAAP net loss of $20.5 million mostly due to a $14.1 million charge related to preferred stock warrants and $2.7 million in stock-based compensation expenses. The diluted loss per share came in at $0.71

"Our first quarter was a strong start to fiscal 2013 and continues the momentum we experienced last year," according to CEO Sullivan. "We added more than 350 new customers and now have over 4,000 customers using Splunk software to achieve operational intelligence from their machine-generated data."


For the second quarter of 2012 the company expects to reported total revenues of $38-$40 million vs. analysts expectations of $38 million. Non-GAAP operating margins are expected to come in between minus 8 and minus 9% which compares to minus 9.5% in the first quarter.

For the full year of 2012 total revenue is expected to come in between $174 and $177 million vs. analysts expectations of $172 million. Non-GAAP operating margins are expected to come in between minus 4 and minus 5%.


Splunk ended its first quarter with $266.1 million in cash and equivalents, as it reported $226.5 million in net proceeds from the public offering. The company did not have any meaningful debt outstanding. After Friday's plunge, the market values the firm at $2.52 billion, or $2.25 billion for the operating assets of the firm. This values Splunk at 13 times annual revenues. Currently Splunk does not pay a dividend.

Investment Thesis

While Splunk's shares saw a serious correction on Friday it remains one of the best performing public offerings so far this year. The firm went public on the 20th of April for $17 per share, up from its initial price range of $11-$13. Shares more than doubled on their opening day to $36.20 and have traded in a $30-$36 trading range for most of the month of May.

Splunk beat analyst consensus on their revenue headline this quarter, but lack of profitability was a disappointment to investors. Revenue growth, which came in at 80% for the first quarter of 2012, remains very strong. As a result of the high growth, the market values the firm at 13 times its expected revenues for 2012. While an investment in Splunk can hardly be called "conservative" from a traditional value investor viewpoint, there is a very real possibility that large tech giants are looking to acquire the promising data technology company.

I am not considering an investment in Splunk yet, I would like to see a further correction in the shares to levels in the $20-$25 region before considering an investment.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.