Splunk (SPLK 109.10, +7.47, +7.35%) is trading higher today after reporting Q3 (Oct)
results last night. It was another solid quarter for the company although there
was some margin compression.
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. Examples include HVAC controllers, manufacturing systems, smart electrical meters, GPS devices and RFID tags. 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.
SPLK makes the point that, unlike other data technologies, you do not have to know the questions you'll ask before you deploy Splunk's platform. The magic of Splunk is that its platform embraces the complexity and chaos of an ever-changing data landscape and allows clients to find insights from their data without the high entry cost of cleansing, parsing and structuring.
Turning to the Q3 (Oct) results, non-GAAP EPS jumped 36% yr/yr to $0.38, which was a good bit better than market expectations. Revenue rose 40.4% yr/yr to $481 mln, which was well above prior guidance of $430-432 mln. Non-GAAP operating margin came in OctQ at 13.6%, down from 15.5% achieved in the prior year period. In terms of guidance, Splunk expects Q4 (Jan) revenue to come in around $560 mln, which is modestly above market expectations. SPLK expects JanQ non-GAAP operating margin to increase sequentially to 25-26%.
Its growth is mostly coming from new and existing customers expanding their adoption with Splunk as their platform for data analytics and machine learning. On the call, SPLK described how Softbank purchased Splunk Cloud to speed up troubleshooting for mobile devices and app management. Chicago Public Schools expanded their use of Splunk Cloud to help automate their ServiceNow ticketing process along with other IT monitoring and response workflows. Long-time Splunk customer, Norfolk Southern, expanded their use of Splunk Enterprise and ES to better lead with an analytics-driven approach to security.
Rolling out new technologies and capabilities is also a key part of Splunk's success. At its recently hosted conf18, Splunk shared its newest wave of product innovation. It announced updates to existing products, including new versions of Splunk Enterprise and Splunk Cloud, with better performance, scale, machine learning, and analytics abilities. It also released Splunk for Industrial IoT, its first IoT product, which provides a simple view of the complex industrial data environment. And it unveiled Splunk Next, which is still in beta testing. It allows clients to search at massive-scale, analyzing trillions of events at millisecond speed.
In sum, this was another good quarter for Splunk. Stepping back, it's easy to see how Splunk's platform could be useful across so many industries. There is a lot of data generated every day but much of it is not captured or structured. Splunk allows clients to corral that data and make better operational decisions. It continues to see nice revenue growth and it's acquiring larger customers at a quicker pace. Overall, Splunk is benefiting from the explosion in machine data and, more importantly, the increased recognition by customers that they need to harness this data better to operate their business better.
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