Splunk Inc (NASDAQ:SPLK), a provider of software solutions, is close to obliterating its 2016 gains as SPLK stock tanks 8.5% after earnings. Let’s take a look at the numbers.
Analysts were expecting 3 cents per share on revenues of $200.5 million. Instead, they were treated to per-share earnings of 5 cents on $212.8 million, an increase of 43% year-over-year. Wait … what?
Yes, SPLK stock beat earnings. To top it off, SPLK now projects full-year revenues between $910 million to $914 million, well above the consensus for $897 million.
CEO Doug Merritt had this to say in the report:
“We had a solid Q2 and our success continues to come from a combination of our existing customers expanding across multiple use cases and from adding more than 500 new customers. We were pleased to see strength across each of our core markets, the continued adoption of the Splunk platform and increased cloud momentum.”
Perfectly normal for SPLK stock holders to react by selling shares down nearly 9%, right?
Why SPLK Stock Is Dropping
Turns out investors are pretty bummed about the outlook for Q3, where Splunk anticipates sales in the range of $228 million and $230 million. That’s right around the $228.9 million analysts expect. The market expected more, however.
Light guidance may’ve started the fire, but Stifel’s Brad Reback poured gas on it, cutting Stifel’s rating on SPLK stock from “buy” to “hold.” According to Reback, Splunk had a “solid second quarter,” but its license upside was a letdown compared to past results. This is despite the fact that Splunk’s cloud products nearly doubled YoY.
Reback considers the cloud boom as contributing to “meaningful compression” in the firm’s licensing business, which posted its lowest billing growth in four years. Further, Walter Pritchard from Citi Research believes part of the decline stems from the difficulty in actually figuring out Splunk’s revenues from here on out:
“It appears strong growth trends remain on track as we can qualitatively drive math that adds 12 point of growth in excess of our 26% license bookings growth estimate. However, with two levels of abstraction to get there (ratable and cloud assumptions), trajectory of the business is more opaque, a tough set-up for an expensive stock.”
So was today’s action an overreaction? Probably not. SPLK stock trades at 120 times future earnings and 10 times its book value. A little air in the valuation was needed.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
