The Six Five team does a deep dive into the latest Q1 fiscal earnings report from Splunk.
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Daniel Newman: Let’s talk about another company that announced some earnings that’s in a interesting impasse and its existence, and that’s Splunk.
Splunk’s the data to everything platform. Big in IT, Op Sec, Ops observability, super fast growing one of the fastest companies on the planet to get to 2 billion in recurring revenue. Basically it announced its first quarter of 2022. The company is in a major transition itself. So we talked about it was an on-prem company that had IT Ops services, it’s moved its model to Splunk Cloud that’s its strategy right now. It grew its ARR in cloud 83%, this quarter, Pat, to 877 million. Its overall error has now grown 39% year over year to 2.47 billion. Cloud revenue was up 73% total revenue for the quarter up only 16%. Now a couple of interesting takes on this one company still not making money. And this is kind of spooking some people out there it’s loss has actually got a little bigger this quarter on a year, over year basis.
Now my story and I’ll stick to is the company is doing very well. It grew 99% to 203 customers that have their cloud error above a million dollars. So they are growing very quickly. They had 537 customers doing over a million dollars a year in recurring revenue. But the cost of scale is definitely, this continued need to scale is the big key here to turning that corner, I think, largely the company is comfortable with showing losses on a short-term basis in order to get to that scale of top line revenue, to become the company they want to be. It made more acquisitions this quarter, including True Star security acquisition. For me, I’m really looking at the durable growth I’m looking at are they growing the ARR and what rate are they growing the ARR? And then I’m looking, Pat, at are they growing their big customers?
Are they getting those million dollar wins? With Zoom, I look at the a hundred thousand dollar customer ad. For Splunk, I’m looking at million dollar customer ads. You’re talking about a system that’s basically managing the entire data ecosystem of a company. And that is what Splunk is doing on a regular basis. They’re showing the right trajectory. They’re winning new, big named customers each and every quarter. On a global basis their revenue is being pretty well diversified on a go forward basis. The company’s continuing to grow, once again, I’ll point out street was not happy with these results. Did not give it a lot of positive vibes. I believe the stock was down about 10 bucks on the day following and that’s…
It was trading at like 110. But the point is is that this is a company in transition, completely shifted its business model, is growing revenue very quickly needs to get profitable, or it needs to continue growing at an even faster clip, in my opinion, to satisfy those investors in the market, but in the right space, Pat, I think you’ll agree when I send this over your way, observability is hot. How your apps were running, how your data is being used, how secure your environment is. People are paying a ton of attention to this competition is heating up, but Splunk really is the company, well the name people love it or hate it. It is the company that kind of is, it’s synonymous with observability and IT and SecOps.
Patrick Moorhead: Yeah. It’s interesting that we talked about Cloudera and Splunk on the same day Splunk, has a potential risk to fall into what, what Cloudera did, what Cloudera fell into with Hadoop as looking at, as the old guard, right? There are companies like Observe out there that are leveraging snowflake that are going after observability tools to try to one up companies like Splunk. So that’s what I think that investors are looking at is, hey, are they going to make the turn and be too big to fail? Now I have to say that Splunk is worth four times as much, almost four times as much as Cloudera right now, but it’s something they need to look at. And I do like what they’re doing and what they’re doing is leveraging core areas like security, like observability, that absolutely makes sense.
And when you, when you start to amass large fortune 500 customers like this and they are on, I think, a roll here, not that it makes you too big to fail, but enterprises don’t like to change when they get into stuff. It’s not like they’re selling to a ton of cloud native companies who can flip on a dime, or switch an API. This is, I think you used the word durable type of revenue that keeps paying off and smokes key competitors. I hear their value proposition, and I bring up Splunk. They talk about it as being cost and cost is important and Splunk, it gets looked at some times as the expensive option, but that’s not durable. That doesn’t mean much to me from a… Very rarely is cheaper win in enterprise. So we’ll have to see.
Daniel Newman: Absolutely, great points. Got to move on to our final topic of this week’s edition of the Six Ten. You and I, once again, cannot resist to say more saying less sometimes just isn’t possible when there’s so much to analyze.
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