Splunk: A Rare Breed

04/08/2015 7:00 am EST


Rob DeFrancesco

Founder, Tech-Stock Prospector

This new recommendation increases our exposure to the most promising next-generation software vendors, says Rob DeFrancesco, editor of Tech Stock Prospector.

There are few companies these days of any meaningful size consistently putting up the growth number of Splunk (SPLK), a provider of machine data analytics solutions.

In fiscal Q4, Splunk added more than 600 new accounts, bringing the total to more than 9,000 customers.

The company also closed 429 transactions worth more than $100,000, a gain of 48% from the year-ago quarter. A record 39 deals totals $1 million+, up 86%.

Its success in security comes from its focus on Big Data analytics. Its solutions look for patterns, trends, and disruptions in machine data, with the goal to detect anything unusual or nefarious.

Splunk Cloud also continues to gain traction; the number of cloud customers in the latest quarter jumped 90%.

Overall in fiscal Q4, Splunk supplied a lot of positive metrics, including gross margin staying steady at a robust 90%; billings growth coming in at 47%; and per share earnings of nine cents topping the consensus by five cents.

Overall, a software company with strong pricing power is a rare breed. For fiscal 2016, Splunk expects revenue of $600 million and growth of 33%.

The one big caution flag is the high valuation, which makes the stock extremely volatile. 

Splunk is expensive because the company is positioned within a few tech megatrends: Big Data, the cloud, security, and analytics.

Investors will pay up for key payers in the long-term growth areas. But that doesn't mean Splunk is immune to short-term corrections of 15% to 30%. A good game plan, therefore, is to buy shares on weakness.

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