Splunk posts record results and aims for $1 billion revenue

Profile picture for user ddpreez By Derek du Preez February 25, 2016
Summary:
New CEO Douglas Merritt said that he was confident in Splunk’s long-term strategy and spoke said that the company had brought on over 600 new enterprise customers this year.

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Machine data analytics firm Splunk has posted another record set of results, both for its fourth quarter and full year. Shares for the company were up more than 5% on the news today and new CEO Douglas Merritt said that he was “bullish” about Splunk’s future opportunity.

It was announced back in November last year that Merritt, who had been Splunk’s SVP of field operations, would be replacing long-standing CEO Godfrey Sullivan.

For it’s fourth quarter earnings, Splunk saw it’s revenue jump 49% on a year ago, up to $220 million. Equally, it’s revenues for the full year were up 48% to $668.4 million.

A net loss of $287.77 million didn’t seem to deter investors, as the company projected that for fiscal 2017 revenue will reach $880 million.

Splunk added that it now has over 11,000 customers, with over 600 enterprise customers being signed in the past year.

Successes

On an analyst call, Merritt explained that the company is seeing success from both the ever increasing amount of data available to enterprises, but also Splunk’s growth approach once it’s working with a customer. He said:

A quarter into my new role at Splunk, I'm sure you can tell how proud I am to be a part of such an amazing team. I couldn't be more bullish about our opportunity, and I am confident in our long-term strategy. What makes me so excited is simple. The amount of data out there is exploding and is predicted to continue to do just that. And Splunk is the best solution to allow customers to easily and cost-effectively collect, analyze, and get maximum value from that data.

Analysts estimate that between 2013 and 2020, the amount of data generated globally will increase tenfold, doubling every two years. That is why we firmly believe that by any measure of penetration, we are just getting started. Changing seats from head of field to CEO makes me even more convinced in our strategy to become the ubiquitous machine data platform that can grab and analyze data from anywhere.

Our approach also remains the same, gain entry through solving one pain point for our customers and then expand over time into new use cases and buying centers.

Partners and cloud

Merritt also noted that the most common use cases he is seeing for new deals are ones where companies are thinking about how they can make use of both their on-premise infrastructure and the cloud. He added that orders for Splunk Cloud grew triple digits year over year in !4.

And then on the use cases, the two predominant trends that we're seeing are more and more hybrid environments as people are continuing to move workloads into the cloud, but they obviously still have a lot of their core IT infrastructure and workloads being done in their existing private data centers. And then a lot more multiproduct type pacing, people straddling from security to IT ops or from IT ops to security, that's continued.

And the constant experimentation with more the operational analytics as marketing probably specific gets a little bit more understanding of the treasures that could be hidden in the big data that the IT systems have accumulated.

It was also evident from the call that there has been a big push from the company into its partner ecosystem, which is being used as one of its core channels for growth. Merritt said:

Over the last 90 days, I have spent time with many of our strategic partners, and what is clear to me is that Splunk's relevance in the technology landscape is increasing rapidly. Our partnerships are deepening with companies such as Amazon Web Services, Cisco, Palo Alto Networks, Booz Allen, Verizon Enterprise Solutions, and EMC, to name just a few.

For example, we joined forces with Verizon to bring threat detection analytics to enterprises and government agencies. They will integrate Splunk Enterprise and ES into their managed security services platform to provide more actionable predictive threat intelligence to customers. Verizon is also using Splunk to power their advanced security operation center offering.

Other examples include our recent agreement with EMC, where Splunk is now on EMC's price list and is being sold by EMC's sales force. Building our ecosystem remains a critical focus area for Splunk, and I'm really excited about the progress we're making.

Splunk has also increased its portfolio to include integrations with the likes of Akamai and ServiceNow.

The $1 billion mark

Finally, chief financial officer and SVP David F. Conte gave analysts and insight into the company’s growth to reaching $1 billion in revenues. If in 2017 Splunk is aiming for $880 million in revenues, at the current growth rate it looks like it could be hitting $1 billion some time before the end of 2018.

However, Conte was keen to highlight that in the medium term, $1 billion is far short of what is possible. He said:

I have no concerns at all about the leveragability of our model. And I can tell you, I'm brutally deliberate in my prepared remarks to emphasize the discipline in which we want to invest in product and field coverage in particular, and of course, the market groups and the cloud. So if I think about Salesforce and what did they look like when they were at $1 billion and their path to, say, $4 billion and the margin characteristics, they had reached a certain level of scale of delivering their product SaaS-only, which is terrific.

We, on the other hand, are in the middle of expanding our hybrid delivery model from not just a traditional on-prem and the margin characteristics of that business, but adding in a cloud component, which we think is absolutely critical, and Doug mentioned it. Hybrid enablement for our customers is really differentiating, and we really are focused on making sure that we deliver that for customers. Of course, that comes with some element of investment that's incremental to what Salesforce was doing at the time they crossed $1 billion or what a traditional on-prem software company would be doing at the same $1 billion milestone.

And while we think about $1 billion in revenue – approaching $1 billion in revenue, I still consider that fractional in terms of the share that we're going to gain in the

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Doug Merritt, CEO Splunk

medium term. So we're going to be thoughtful. We think growth is a first-class citizen. In terms of leverage, I'll declare, we could be more thoughtful today and deliver more margin expansion, but I think it would be a bit shortsighted in terms of customer capture. We deliver the cash flow leverage that I think is indicative of that opportunity, and we're going to continue to focus on the balance between what's the revenue growth and what's the customer acquisition trend. How are we getting the right coverage in the field, how much cash flow are we generating, and ultimately, what's that op margin leverage?

My take

Having monitored this company for a number of years now, I have no doubt that it is solving a problem for its customers and solving it well. $1 billion in revenue will come, but that won’t be the peak.