How much a stock’s price changes over time is important for most investors, since price performance can both impact your investment portfolio and help you compare investment results across sectors and industries.
Another thing that can drive investing is the fear of missing out, or FOMO. This particularly applies to tech giants and popular consumer-facing stocks.
What if you’d invested in Splunk (SPLK) ten years ago? It may not have been easy to hold on to SPLK for all that time, but if you did, how much would your investment be worth today?
Splunk’s Business In-Depth
With that in mind, let’s take a look at Splunk’s main business drivers.
San Francisco, CA-based Splunk Inc. provides software solutions that enable enterprises to gain real-time operational intelligence by harnessing the value of their data. The company’s offerings enable users to investigate, monitor, analyze and act on machine data and big data, irrespective of format or source, and helps in operational decision making.
The company’s flagship offering, Splunk Enterprise, is primarily a machine data platform. It can collect and index petabytes of machine data on a daily basis. Splunk Enterprise also enables users to interactively explore, analyze and visualize data stored in sources such as Hadoop and Amazon S3.
Splunk Cloud delivers the benefits of Splunk Enterprise deployed and managed reliably and scalably as a service. Splunk Light provides log search and analysis, which are designed, priced and packaged for small IT environments.
The company’s premium solutions include Splunk Enterprise Security (ES), Splunk IT Service Intelligence (ITSI) and Splunk User Behavior Analytics (UBA). These solutions address emerging security threats and information and event management (SIEM), monitor health and key performance indicators of critical IT, and detect cyber-attacks and insider threats in business operations, respectively.
Splunk complements the aforementioned services with few add-ons, including Splunk Machine Learning Toolkit (MLTK), Splunk App for AWS, Splunk DB Connect and Cisco Firepower App for Splunk.
Splunk generated revenues of $2.67 billion in fiscal 2022. License and Cloud Services contributed 39.5% and 35.3% of total revenues in the fiscal, respectively. Maintenance and services revenues accounted for the rest.
Splunk Enterprise customers pay license fees generally based on their estimated peak daily indexing capacity needs. The company also generates revenues from enterprise adoption agreements (EAAs). Splunk Cloud customers pay an annual subscription fee based on the combination of the volume of data indexed per day and the amount of data stored.
The company faces significant competition from the likes of Oracle, IBM, Intel and Microsoft, among others.
Bottom Line
While anyone can invest, building a lucrative investment portfolio takes research, patience, and a little bit of risk. If you had invested in Splunk ten years ago, you’re probably feeling pretty good about your investment today.
According to our calculations, a $1000 investment made in December 2012 would be worth $3,001.79, or a 200.18% gain, as of December 8, 2022. Investors should keep in mind that this return excludes dividends but includes price appreciation.
In comparison, the S&P 500 gained 177.41% and the price of gold went up 0.71% over the same time frame.
Going forward, analysts are expecting more upside for SPLK.
Splunk’s performance is gaining traction from healthy customer engagement, evident from the consistently high net retention and competitive win rates alongside solid momentum with large orders overall. The company is improving the resilience and security of its critical system and driving efficiencies within its own internal operation. Also, business transition from perpetual licenses to subscription or renewable model is expected to benefit it in the long run. The company’s top line is benefiting from high demand for its cloud solutions. However, the transition to a renewable model from a perpetual license model is hurting its cash-flow generation ability due to lower upfront payment. Management expects sluggish on-premise business to hurt growth in the near term. Stiff competition and leveraged balance sheet are further concerns.
The stock has jumped 16.46% over the past four weeks. Additionally, no earnings estimate has gone lower in the past two months, compared to 11 higher, for fiscal 2023; the consensus estimate has moved up as well.
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