The Splunk Inc. website on a smartphone on Sunday, Feb. 28, 2021.
Tiffany Hagler-Geard/Bloomberg
Splunk remains a frustrating stock for its shareholders. But there’s reason to think that owning the data analytics software company’s shares should eventually pay off for investors.
As Barron’s has chronicled, Splunk (ticker: SPLK) has been working through a business model transition, shifting more customers to cloud-based versions of its software; the switch also includes a new revenue model more focused on subscriptions than perpetual licenses.
That kind of transition almost always creates disruptions in reported results – subscription-based businesses are more predictable, but the shift depresses reported revenue in the short run.
July quarter earnings beat estimates, but the stock fell anyway, hampered by guidance that was fine but failed to excite investors. Since last reporting results, the stock has slumped 10%, and it is off about 19% for the year to date.
But the stock looks perkier on Thursday, up 4.5% to $143.82 on a day when the S&P 500 is down a little under 1%. For that give credit to Piper Sandler analyst Rob Owens, who reiterated his Overweight rating and $190 target on the stock, implying better than 30% upside.
Owens writes in a research note that Splunk remains “a top pick” heading into the company’s fiscal fourth quarter ending in January.
Owens writes that recent meetings with the company give him “confidence in continued progress.” He says the company should benefit from a combination of pricing and product tweaks, growth in demand for cloud versions of its software and a strong fundamental backdrop, with IT spending picking up. He thinks the company’s upcoming user conference, known as “.conf,” could be a catalyst for the stock, with new product announcements and an update on pricing dynamics likely.
“After a difficult quarter nearly a year ago, we believe execution challenges have been remedied,” Owens writes in a research note. “At that time a handful of large deals were undergoing more stringent evaluation,” with board-level oversight of large contracts, causing a shortfall. “From Splunk’s perspective, this elevated scrutiny was temporary and has not been a significant factor in three subsequent quarters.”
Write to Eric J. Savitz at [email protected]
