The News: Splunk Inc. (NASDAQ: SPLK), a data platform provider for security and observability, announced results for its fiscal third quarter (Q3) ended October 31, 2022.
Q3 2023 Financial Highlights:
- Total revenues grew 40% to $930 million year-over-year (Y/Y)
- Cloud revenue grew 54% to $374 million Y/Y
- GAAP operating margin was (2.1%); Non-GAAP operating margin was 21.3%
- GAAP EPS was $(0.20); Non-GAAP EPS was $0.83
- Cloud Dollar-Based Net Retention Rate was 127%
- Customers with total ARR greater than $1 million grew 19% to 754 year-over-year
Splunk Fiscal Q3 2023: Total Revenues and Cloud Revenue up Spurring Full Year Outlook Uptick
Analyst Take: Splunk delivered fruitful fiscal Q3 2023 results highlighted by total revenues increasing 40% Y/Y to $930 million and cloud revenue 54% Y/Y to $374 million. Splunk wrapped up the quarter with total annual recurring revenues (ARR) of $3.47 billion up 23% Y/Y and Cloud ARR rising 46% to $1.62 billion. The company reported 754 customers with ARR more than $1 million, up 19% Y/Y.
We find equally impressive the fact that Splunk’s license revenues were $383.6 million, up 54.1% Y/Y and representing 41.3% of its total revenues. Fueled by uptake of its cloud platform Splunk’s cloud services revenues swelled 53.9% to $346.4 million, representing 40.2% of its total revenues. Maintenance and service revenues remained relatively flat at $172.2 million (18.5% of total revenues). Also, GAAP gross margin improved to 78.3% from 71.7% Y/Y, owing to higher revenues. GAAP Cloud services gross margins increased 920 basis points to 68%.
As a result, Splunk is boosting its fiscal 2023 guidance to be between $3.455 billion and $3.485 billion, which is up from $3.35 billion and $3.4 billion projected earlier. Moreover, non-GAAP operating margin is anticipated be within 12-13%, up from the earlier expectation of 8%. From our view, Splunk’s upward adjustment of its full-year guidance provides additional validation for President and CEO Gary Steele’s vision and direction for the company.
We anticipate that Splunk’s strong portfolio suit across observability and cybersecurity technologies, including segments such as security information and event management (SIEM), further strengthens the company to capitalize on growing demand by DevOps, IT operations, and software development teams for more intelligent troubleshooting, build, and innovation capabilities. Managing modern cloud infrastructure is becoming more intricate, and we see performance and security gaps as becoming an increasing liability due to the fragmentation of disparate legacy tools that are distributed throughout hybrid and multi-cloud environments.
From our perspective, it’s clear that Splunk’s portfolio development and marketing strategy is meeting these top priority enterprise performance and security needs. This includes enterprises expanding deep observability capabilities to harvest actionable network-level intelligence, which is key to bolstering network-wide cyber defenses and optimizing network performance.
Specifically, we see Splunk’s portfolio feature set now provides comprehensive hybrid cloud visibility through the general availability of Splunk Log Observer Connect designed to help enterprises understand with logs are dependent on infrastructure and applications as troubleshooting teams investigate performance problems. This capability provides can provide more context across metrics, traces, and log data in production environments to accelerate identification of root causes with more granular detail.
We also see the Splunk portfolio’s support for AI-directed troubleshooting through the Splunk Incident Intelligence on Splunk Observability Cloud solution as playing a critical role at aiding IT and DevOps teams in preventing unplanned downtime with full-stack, full-context alerting.
Splunk Fiscal Q3 2023: Key Takeaways
Overall, we believe Splunk is solidly positioned to sustain long-term, durable growth as well as profitability as the company continues to diversify its high-value ARR streams to fulfill swiftly growing enterprise demand for intelligent observability and cybersecurity solutions. Splunk is developing and delivering the end-to-end visibility tools as well as the AI-enabled troubleshooting and monitoring capabilities vital to enabling proactive, network-wide observability and cybersecurity protection.
Disclosure: Futurum Research is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of Futurum Research as a whole.