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Splunk (SPLK) is trading roughly flat after reporting Q1 (Apr) results last night. Many investors have probably heard the Splunk name but they do not really understand what they do. Basically, Splunk provides software that allows its customers to collect, index, search, monitor and analyze data regardless of format or source. Its software helps make sense of large and diverse data sets commonly referred to as big data and it's specifically tailored for machine data.

Machine data is produced by nearly every software application and electronic device at a company. Each thing that happens contains a time-stamped record of various activities, such as transactions, customer activities, and security threats. Beyond a company's traditional IT and security infrastructure, every processor-based system generates machine data. Examples include HVAC controllers, manufacturing systems, smart electrical meters, GPS devices and radio-frequency identification tags, and many consumer-oriented systems, such as electronic wearables, mobile devices, automobiles and medical devices that contain embedded processor chips.

These things are continuously generating machine data. Splunk's software helps make sense of all these data points in real-time so management and IT staff can make the correct operational decisions.

Its flagship product is Splunk Enterprise, a machine data platform, comprised of collection, indexing, search, reporting, analysis, alerting, monitoring and data management capabilities. Splunk Enterprise can collect and index hundreds of terabytes of machine data daily, irrespective of format or source. Its platform uses Splunk's patented data processing architecture that performs dynamic schema creation on the fly, enabling users to run queries on data without having to define or understand the structure of the data prior to collection and indexing. This is in contrast to traditional IT systems that require users to establish the format of their data prior to collection in order to answer a pre-set list of questions.

More than 11,000 customers in over 110 countries in a wide variety of industries use Splunk software and cloud services. In Q1 (Apr), Splunk signed more than 450 new enterprise customers. New and expansion customers include: Auburn University, Chicago Public Schools, Chipotle, Clemson University, Denver International Airport, FamilySearch, GoodData, Virginia Dept of Motor Vehicles, World Bank Group.

Turning to the Q1 (Apr) results, Splunk reported a non-GAAP loss of $(0.02) per share, which was in-line with market expectations and a bit below the $(0.01) loss in the prior year period. Revenue rose 48.0% year/year to $186.0 mln, well above prior guidance of $172-174 mln. License revenue rose 41% YoY to $101.0 mln. In terms of guidance, Splunk expects Q2 (Jul) revenue to come in around $198-200 mln, in-line with market expectations while full year revenue guidance was bumped up to $892-896 mln from prior guidance of approximately $880 mln.

On the call, Splunk talked about how it sees the wave of digital transformation impacting every industry and every enterprise. The amount of data being generated is exploding, and that trend will continue. Splunk sees itself as the best platform to enable customers to collect, analyze, and get maximum value from that data.

Also, Splunk recently released Enterprise 6.4 which includes new interactive visualizations and an open library on Splunkbase, where customers and partners can develop and share their custom visualizations. In addition, Splunk enhanced its predictive analytics, improved query performance, and made a series of security and management improvements. Splunk also reduced the cost of historical data storage by 40% to 80%.

In sum, the stock is trading roughly today despite the large revenue upside. Our sense is that the in-line EPS result and the luke warm JulQ revenue guidance is being seen as a bit of a disappointment after Splunk reported two good size beats in Q3 (Oct) and Q4 (Jan). Also, the stock had rallied 17% since its May 6 close heading into this report, so the expectations were likely pretty high. Overall, it was a pretty good quarter for Splunk, just maybe not the blowout some investors were expecting.