IBM Stock: Why International Business Machines Corp. Should Buy Splunk

Advertisement

Over the last few months, rumors have spread that International Business Machines Corp. (IBM) is interested in either expanding its partnership with or fully acquiring machine data analytic company Splunk Inc. (SPLK).

IBM Stock: Why International Business Machines Corp. Should Buy SplunkWith a $6 billion market capitalization, Splunk would be a costly acquisition for IBM, but given the latter’s acquisitive nature and its apparent place in the Internet of Things, it would be well worth the price.

Why Splunk?

Data analytics is a key component for the Internet of Things. In retrospect, the IoT’s purpose is to make cities, homes, cars and everything else smarter and more connected, thereby saving money long-term.

The only way this is accomplished is by collecting data, analyzing that data and then making changes accordingly.

Splunk is one of those companies that collects and analyzes data, specifically on machines. These include smartphones, servers, computers, websites and all the sensors that are being applied to city infrastructure to make street lights work more efficiently, or identify exact problem areas for power outages or damaged water pipes.

Therefore, Splunk has a very specific skill set that will really shine in the IoT, and even without Splunk, IBM is well on its way to becoming the leader of big data analytics in the IoT.

IBM has made huge investments in several areas of data analytics. It has the capabilities to collect and analyze data in healthcare to better diagnose patients, aid in complicated procedures, etc. Also, after buying The Weather Channel assets, IBM is well positioned for analytic services in the media, aviation and energy industries.

Splunk would give IBM icing on its already very impressive cake. It would add a new layer where IBM could sell the information and collect data from a broader array of devices and machines.

Ultimately, Splunk bodes well for IBM’s ambition to capture a $40 billion-plus big data technology and services market.

Is Splunk Good for IBM Stock?

What many don’t realize is that Big Blue is the market leader in business analytics. This is a segment that combines many of IBM’s most successful businesses from the cloud, hardware, software and services. Last year, IBM’s business analytics operations grew 7% to $17.9 billion, or 22% of total revenue and responsible for essentially all of the company’s growth.

With IBM forming a new Internet of Things segment, the performance of business analytics should shine for IBM, and could be enough to create optimism among shareholders and drive IBM stock higher.

Given that Splunk is expected to grow 31% and create $855 million in revenue over the next year, it would certainly have a noticeable impact on IBM’s IoT and business analytics segments. Furthermore, it would add just enough annual revenue to push IBM from the brink of growth in 2016 to actual year-over-year growth, which is certain to make IBM stock owners happy.

Beyond that, if IBM acquires Splunk, it opens a huge door for cross-selling opportunities. Splunk already has a large list of partners and more than 10,000 customers. However, Splunk is still in many instances a secondary service provider, applied to just a fraction of a large company’s operations.

By becoming a part of IBM, it will open doors to an even larger customer base and for larger, more meaningful deals.

Keep in mind, companies like AT&T Inc. (T) are rolling out huge IoT initiatives to make the likes of Chicago, Atlanta and Dallas “Smart Cities.” IBM is, in most instances, a partner for such initiatives by companies like AT&T, and if Splunk is a part of IBM, it increases the likelihood that Splunk’s technology will be used to collect and analyze the data from tens of thousands of sensors and machines that are collecting data.

How Likely Is the Acquisition?

The real scope of possibilities created from an IBM and Splunk tie-up are hard to imagine, mainly because of how quickly these IoT rollouts are expected to occur over the next two years.

With Amazon.com, Inc. (AMZN), a major competitor of IBM in the cloud, rolling out a new service called Space Needle that challenges many of the services offered by the likes of Splunk, it seems that IBM could gain a quick edge against AMZN by purchasing Splunk.

This fact coupled with the cross-selling and growth opportunities that exist make it a likely tie-up, and a great catalyst for IBM stock.

As of this writing, Brian Nichols owned shares of T stock.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2016/02/international-business-machines-corp-ibm-buy-splunk-ibm-stock/.

©2024 InvestorPlace Media, LLC