![]() Hello! I'm Michael Wiggins De Oliveira and I have built a huge following by delivering high-quality investment insights over the years. Furthermore, given Splunk's upwards revising profitability profile, it looks very likely that in a few quarters' time, Splunk will be on a run rate of $1 billion in free cash flow. Splunk Inc.'s newly updated guidance shows that there's still a growth engine in the company. This leaves the stock priced at around 17x forward free cash flow. ![]() With this consideration in mind, I believe that within a few quarters' time, Splunk will be on a $1 billion free cash flow annualized run rate. For that reason, we recommend that investors evaluate free cash flow on a trailing 12-month basis which totaled $776 million at the end of Q1, more than quadruple the $179 million generated over the 12 months ending April 30, 2022. Q1 is annually our largest free cash flow quarter driven by the seasonally high bookings in Q4, which are mostly collected in Q1. More specifically, during fiscal Q1 2024, free cash flow was up 253% y/y. And the recently upgraded non-GAAP profitability implies a dramatic ramp-up in profitability in H2 2024.įurthermore, on a free cash flow basis, Splunk is seeing a very rapid increase. In conclusion, there's no question that Splunk's profitability profile is indeed moving in the right direction. On the other hand, it's worthwhile to note that Splunk's SBC expense in the same quarter last year amounted to approximately 33% of its total revenues, while this time around SBC now accounts for 25% of total revenues. While I won't make any comments with regard to Splunk's bloated stock-based compensation ("SBC"), the fact remains that at some point, investors will demand even more aggressive reductions on Splunk's SBC expenses. This compares with its previously guided fiscal Q1 2024 negative 3% non-GAAP operating margin. This is particularly noteworthy given that Splunk's non-GAAP operating margin in the most recently reported quarter, fiscal Q1 2024 was 3.3%. Splunk upwards revised its non-GAAP operating margin by 100 basis points at the high. However, the good news has not stopped there. What's more, I suspect that it's now likely, given Splunk's recently found momentum, that it may in fact end up upwards revising its full-year fiscal 2024 outlook at some point in the coming quarters.Īfter all, despite the challenging comparables with fiscal H2 2023, it appears possible that analysts may be too bearish on Splunk's H2 prospects. For investors, this was a markedly positive surprise.Īfter all, as we headed into the print, Splunk was presumed to be growing in fiscal Q2 2023 by single digits: Expectations Had Been Reduced AlreadyĪs you can see above, Splunk's fiscal Q2 2024 guidance points to 12% y/y growth rates. ![]() There's a lot of demand for Splunk's operations, but I'm not sure that Splunk is retaining its market share. ( ESTC), but there are many others too, both big competitors including Amazon's ( AMZN) AWS and International Business Machines Corporation ( IBM), as well as, smaller peers such as the recently taken private Sumo Logic, Inc. I suspect readers will know of Datadog and Elastic N.V. While there's tremendous demand for log management and operational intelligence platforms, there's also intense competition. Its primary use cases include IT operations and business analytics. Splunk focuses on operational intelligence and log management, specializing in analyzing machine-generated data. Machine data is data that is generated by apps and computers, and provides interesting and valuable data that can be used to drive business insights.Īs a machine data platform, Splunk competes with the likes of Datadog, Inc. Splunk specializes in producing software for monitoring and analyzing machine-generated machine data. ![]() A very attractive entry point for investors. This would leave the stock priced at approximately 17x forward free cash flow. I believe that Splunk will be annualizing $1 billion in free cash flows in a few quarters' time. Not only was its revenue in the quarter very strong, but its guidance for the quarter ahead, as well as its full-year revenues were upwards revised.īut the real icing on the cake has to be the fact that the business is expected to massively ramp up its profitability in fiscal H2 2024. ( NASDAQ: SPLK) reported very impressive Q1 earnings results. ArLawKa AungTun/iStock via Getty Images Investment Thesis
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