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Splunk’s IPO Goes Stratospheric

The data analysis company's stock rockets 90% on day one


Splunk (NASDAQ:SPLK), a top player in the fast-growing “big data” space, pulled off a huge IPO today. The stock was priced at $17, which was well above the $11 to $13 range. So far in today’s trading, the shares are up about 90%.

About a year ago, I met the co-founder and chief technology officer of Splunk, Erik Swan. On a whiteboard, he sketched out a compelling future for the company.

Basically, Splunk develops sophisticated software that makes it possible to analyze data logs. This may sound unsexy, but it’s critically important because it helps companies detect security breaches and other real-time issues.

Swan also pointed out to me that once companies start to use the software, it will spread across the organization. Thus, a $10,000 deal may wind up becoming a $2 million enterprise deployment.

So yes, revenues have been surging at Splunk. In 2011, they soared by 83% to $121 million. Consider it has over 3,700 customers, including biggies like Comcast (NASDAQ:CMCSA), (NYSE:CRM) and Zynga (NASDAQ:ZNGA).

If anything, it looks like Splunk is still in the early stages of its growth. Yet investors still need to be cautious. Usually, it’s not a good idea to buy an IPO when it doubles on its first day. Often, this is the result of day traders looking for a quick buck. Once the activity calms down, the valuation usually gets more reasonable.

Just look at Millennial Media (NYSE:MM), which came public in late March. On its first day of trading, the stock spiked by 92%. But now the shares are down by 24%.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”“All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.

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