Splunk (SPLK) is a provider of machine data analytics software that enables clients to make more informed business decisions, explains Joseph Bonner, an analyst with Argus Research — a leading independent Wall Street research firm.
Splunk’s software gives clients real-time operational visibility into IT infrastructure, operations management, security and compliance, software development, applications management, and business and web analytics.
Its products also enable enterprises to search, monitor, and analyze big data sets, including those from emerging technology applications like IoT and industrial data, and use these insights to remediate any issues.
In a surprise move, Splunk’s board has dismissed CEO Doug Merritt. Chairman Graham Smith will serve as interim CEO while the company searches for a permanent replacement. Investors took the news badly, sending SPLK shares down 18% on November 15 after the early morning announcement.
The dismissal of Mr. Merritt, little more than two weeks before the company’s fiscal 3Q22 earnings report, presages a fairly dire print and obviously spooked the market. Reading between the lines, we believe that Mr. Merritt and the board had different views about Splunk’s strategic direction.
While we were surprised by the abrupt dismissal of Mr. Merritt, who had generated superior shareholder returns in his six years as CEO, we will wait for the company’s 3Q results and additional management commentary before reviewing our rating.
In particular, we will be looking for more information about the company’s strategic direction and the search for a new CEO. With the sharp one-day drop in SPLK shares, the damage has already been done.
Given Splunk’s presence in a fast-growing market, we believe that much of its success will depend on execution. The company has recently posted some ugly financials due to its business model transition.
However, we have seen both Adobe (ADBE) and Autodesk (ADSK) move through the same transition from perpetual licensing to ratable licenses and come out as stronger, faster-growing, and higher-margin companies. We think that Splunk should be able to accomplish the same.
Although we are loath to play M&A roulette, we believe that Splunk is exactly the kind of company that could become an acquisition target for a larger enterprise software firm. Our long-term rating is "buy" with a target price of $198.
