Splunk (SPLK) is trading sharply higher (+10%) today after reporting Q2 (Jul) 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.
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.
Customer examples include: 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.
JulQ Analysis: Turning to the Q2 (Jul) results, non-GAAP EPS rose 60% YoY to $0.08, which was better than market expectations. Revenue rose 31.6% year/year to $278 mln, which was a good bit better than prior guidance of $267-269 mln. Non-GAAP operating margin improved to 5.2% from 3.9% in the prior year period.
In terms of guidance, Splunk expects Q3 (Oct) revenue to come in around $307-309 mln, which is slightly better than market expectations. Non-GAAP operating margin is expected to improve sequentially to 8% from 5.2% in JulQ. Full year revenue guidance was bumped up to $1.210-1.215 bln from prior guidance of approx. $1.195 bln. Full year non-GAAP operating margin guidance was reaffirmed at 8%.
Splunk says it was particularly pleased with the its results in the EMEA region. CEO Doug Merritt traveled across Europe, Asia and North America over the last two months. He was excited to see businesses, governments and universities adopting Splunk across multiple departments and use cases.
Splunk signed over 500 new customers in JulQ. New and expansion customers include: Athenahealth, Carnegie Mellon University, Carnival Cruise Lines, Harvard Business School, Long Beach Container Terminal, Panasonic Avionics, Regeneron, Shutterfly etc.
In sum, after selling off on Q1 (Apr) results in late May it's good to see SPLK turn it around in Q2 (Jul) with a solid report and a move higher in the stock. Today's 10% jump is a big move for this stock which has basically just traded sideways for most of the past year. It's also good to see EMEA doing well and margins are improving, it sounds like the second half of the fiscal year will be much better than the first half.