Splunk (SPLK) is trading sharply higher (+15%) today after reporting Q3 (Oct) 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 RFID 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.
Turning to the Q3 (Oct) results, non-GAAP EPS rose 70% YoY to $0.17, which was better than market expectations. Revenue rose 34.3% year/year to $328.7 mln, which was a good bit better than prior guidance of $307-309 mln. Non-GAAP operating margin improved to 9.8% from 6.8% in the prior year period and from 5.2% in JulQ.
SPLK signed more than 450 new enterprise customers in OctQ. New and expansion customers include 21st Century Fox, Arizona State University, Nutanix, US Dept. of Homeland Security, among others.
In terms of guidance, Splunk expects Q4 (Jan) revenue to come in around $388-390 mln, which is slightly better than market expectations. Non-GAAP operating margin is expected to improve sequentially to 16% from 9.8% in OctQ. SPLK also issued upside guidance for next fiscal year (FY19). The company sees FY19 revs of approx $1.55 bln, which was slightly better than market expectations. FY19 non-GAAP operating margin is expected to improve to 10.5% from 8.5% in FY18.
In sum, after selling off on Q1 (Apr) results in late May, SPLK has posted back-to-back impressive results in JulQ and now in OctQ. Today's 15% jump is a big move for this stock which had basically just traded sideways for most of late 2016 into 1H17. It seems that the second half of the fiscal year will be much better than the first half, which bodes well as SPLK moves into FY19.