Splunk Stock: The Key To Unlock This $200+ Billion Opportunity

Splunk Spending on Big Data
flickr/Web Summit

Spending on Big Data To Keep Pushing SPLK Stock Higher

Today’s stock represents another of our favorite strategies of investing in growth stocks. It is called ‘venture capital’ and refers to the strategy of investing in stocks of companies that offer innovative solutions to a number of industries that want to take advantage of a promising technology trend. These solutions may be unique and therefore enjoy good demand in the market. This is a great way for investors to ride the emerging trend with a high probability of making above average returns.

One such opportunity is Splunk Inc (NASDAQ:SPLK) whose innovative software solutions enable users to collect, index, search, explore, monitor and analyze data. Its offerings address diverse data sets that are referred to as ‘big data’ and are specifically used for machine data. As the trend of Industrial Internet and Internet of Things catches on, the solutions by Splunk help organizations gain value from all of these different sources and forms of machine data.

With the volume of data around us growing exponentially, solutions by Splunk help companies make sense of and capitalize on the opportunities presented by such vast amount of machine data. This includes data from industrial control systems, sensors, smart meters etc that are a part of Industrial Internet; as well as data from wearables, mobile devices, automobiles, medical devices etc that make up Internet of Things.

Splunk has a unique platform that lets customers analyze this barrage of machine data and achieve better and real-time visibility about their operations. This shall be one of the most important focus areas for organizations going forward as success shall become a function of capitalizing on this data.

As per a report by International Data Corporation (IDC), the global revenues for big data and business analytics (BDA) will reach $150.8 billion in 2017, which is an increase of 12.4% over 2016. Revenues are expected to be more than $210 billion in 2020. Due to this shift toward data-driven decision making, the market is expected to grow at a CAGR of 11.9% through 2020. (Source: Press Release, IDC, March 14, 2017)

Moreover, industries like banking, manufacturing and federal/central government are expected to make the largest investments in big data and business analytics solutions in 2017 and beyond.

Splunk is uniquely positioned to make the most of this opportunity, with its one of a kind platform that is being widely adopted for machine data analytics and machine learning. With the growth in spending on big data and analytics technologies expected to increase in the coming years, SPLK stock has a lot of room to grow.

The company is gaining good customers consistently, and ended the last fiscal with over 13000 customers across 110 countries. In the first quarter of fiscal 2018, Splunk signed 500 new enterprise customers, including Alabama Department of Transportation, University of New Mexico and companies like Lockheed Martin and Lloyd’s Bank (UK).

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Just last week, Splunk announced that the state of Louisiana has accelerated its IT consolidation and modernization efforts across 20 executive branch agencies and 850 staffers into a modern, shared services model. With Splunk Enterprise, the flagship product of Splunk, the newly unified IT operation is improving efficiencies, cutting costs and enhancing service delivery for its core customers – state agencies and taxpayers.

Splunk Enterprise is the innovative machine data platform that can collect and index petabytes of machine data daily, irrespective of format or source.

The increase in the number of customers has also been the factor behind the strong revenue growth posted by the company. In the recently announced fiscal first quarter 2018 financial results, it reported 30% year over year increase in total revenues, at $242.4 million. In the quarter, more than 80% of the software bookings came from existing customers. Splunk issued optimistic guidance for the second quarter with non-GAAP operating margin expected to be a positive 4%. The company now expects the total revenue for the year to exceed $1 billion.

Splunk stock has gained about 14% in the year to date and has posted around 93% over the last 5 years.

splk stock chart august 2017

Chart courtesy of www.stockcharts.com

Splunk stock has more to gain with the rise in Industrial Internet and Internet of Things as the company makes machine data more accessible, usable and valuable to everyone. The market is huge and Splunk is uniquely positioned to gain from it.

Analyst Take

Splunk continues to grow driven by a combination of new and existing customers expanding adoption of Splunk products. As the company moves towards its target of acquiring 20,000 customers in fiscal 2020, SPLK stock shall gain more in the coming years. Splunk’s platform is one of the best solutions around that enables customers to harness the large amount of unstructured data and improve their decision making in real time.

The earnings are likely to improve in the coming quarters as the company goes through its transition year. There are a number of growth catalysts in the coming future and SPLK stock is likely to continue going higher, along with a few speed bumps. Splunk has a great platform and investors could gain a lot in the coming years by considering this venture capital stock.