Splunk (SPLK) is trading sharply lower (-7%) today 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 13,000 customers in over 110 countries in a wide variety of industries use Splunk software and cloud services. For example, Dubai Airport uses Splunk Enterprise to create a real-time airport dashboard to visualize the complex operational processes at one of the world's busiest airports. They're using Splunk to gain insights into every passenger touch point to drive an excellent experience and to effectively deploy resources. Another good example is Dunkin' Donuts using Splunk Enterprise to analyze the preferences of its five million loyalty program members and gain real time insights into the effectiveness of their marketing campaigns.
Other recent new or expansion customers include Alabama Dept of Transportation, California Dept of Social Services, Experian Consumer Services, Jefferson County Public Schools, Lockheed Martin, Take-Two, UK Ministry of Defence. So you can see the wide variety of industries that use Splunk.
Turning to the Q1 (Apr) results, Splunk reported a non-GAAP loss of $(0.01) per share which was actually better than market expectations. Revenue rose 30.4% year/year to $242.4 mln, which was a good bit better than prior guidance of $231-233 mln. In terms of guidance, Splunk expects Q2 (Jul) revenue to come in around $267-269 mln, pretty much in-line with market expectations.
So why is the stock down? It seems the revenue mix was a bit disappointing as the market was hoping for better license revenue growth, which is higher margin. License revenue rose 16% YoY to $117 mln while Maintenance/Services revenue jumped 48% YoY to $126 mln. Also, license revenue as a percent of total revenue came in at 48% vs 54% in the year ago period. In fairness, part of the reason for such strong growth in the M&S segment was the fact that cloud more than doubled YoY to $17.7 mln. Its cloud business is included in its Services unit and investors should be happy to see nice growth there.
Another factor weighing on the stock was some weakness in its EMEA (Europe, Middle East, Africa) region. However, on the call, management said they have initiated a leadership change there. SPLK noted on the call that the TAM (total addressable market) in EMEA is as large as the US. Splunk remains really enthusiastic about EMEA longer term.
In sum, this was not a great quarter for Splunk, but it was not horrible. They reported nice upside for AprQ and the JulQ revenue guidance was decent. In fairness, the stock had run 12% since mid-April heading into this report. That's a big move for this stock which has basically just traded sideways for most of the past year. As such, perhaps expectations were set for perfection and investors were looking to lock in profits on any negativity.