Equity Report 25.08.2021

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SPLUNK INC (SPLK) AND CLOUD TRANSITIONING

Based in California, Splunk Inc develops and markets worldwide software solutions to get real-time operational intelligence with its key software: Splunk Enterprise (reporting, analysis and data management capabilities. SPLK operates under 2 segments:
– Licenses (Software and Cloud Services)
– Maintenance and services
SKX sales were up by 31% y/y in FY20 to $2.3 Bn, carried by the software licenses segment, maintaining a growth at a faster pace (47% growth on average since 2018) up 40% y/y, accounting for 71% of total sales ($1.6 Bn). A considerable growth driver for the firm, which recently transitioned its business model towards new cloud services (Data to Everything Platform launched in 2019) enhancing SPLK product capabilities and adding more than 450 new customers which include companies such as Swisscom (SCMN.SWX), Mars Inc.

With record revenues in FY20, this year, the software developer SPLK, with its latest earnings (Q2-21), showed its main segment impacted by the sanitary crisis. Indeed, sales of licenses down 37% y/y to $177 M (vs $279 M prior year). A consequence of SPLK’s clients, with business operations shut down with several economies worldwide implementing quarantine and self-distancing measures, pressuring their margins and slowing down long-term investments for further business development.
However, this crisis has accelerated the transition of many business online. SPLK cloud business (launched in 2019) has benefited from this period, up 79% y/y to $126 M (vs $70 M prior year), which represents more than a half of licenses revenue, fueled by the rapid expansion its customers worldwide “attracted” by data analysis and cloud computing. Overall, revenue were down 5% y/y reached $492M (vs $517 M prior year), carried mainly by its cloud and maintenance business segment (up 13% y/y).

To exploit this cloud opportunity and fuel this momentum, the digital data and analytics company, Splunk has implemented new updates and innovations to its Data-to-Everrything cloud platform and increased spending on both R&D and marketing (which explains the dive both operating and net margins between Q4-20 and Q1-21). Also, SPLK announced this 20th October 2020 the acquisition of two tech startups:
– Plumbr, a developer of a performance monitoring application which offers deep understanding and performance insights for corporations
– Rigor, a developer of a digital experience monitoring offering which help its corporatclients to optimize their user experience (digital channels)
Two acquisitions that will give a boost to its existing software via the implementation of new performance management options and guide its clients to improve their digital transformation. Expectation for Q3-21 and Q4-21: Margins recovery for the next quarters at levels before the pandemic, and total sales within a range of $600-$630 M and $700-$750 for both Q3-21 and Q4-21.

SHARE PRICE – Since January 2020, the stock gained 39.4%. The share price (21/10/2020) closed at $205.72 per share.
A stock rallied in Q2-20 (April / June-20) driven by its cloud computing offering. It will keep spending heavily onto its core operations (R&D and marketing) and target smaller tech startups to improve its Splunk Enterprise software adding new features and options.
Shares expectations: ~$220 per shares.

Written on 29/10/2020

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