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Splunk’s Stock Rising Despite Growing Losses

Posted on Monday, Dec 2nd 2013

According to recent reports, worldwide big data hardware and software revenues grew 59% last year to $11.59 billion. The market is projected to be worth $18.1 billion this year, translating to growth of 61% over the year. The market is estimated to grow 31% annually to $47 billion by the year 2017. IBM is the market leader in big data products and services, with revenues of over $1.3 billion from the segment. Other smaller players are making their mark in the industry as well.

Splunk’s Financials

Splunk (NASDAQ:SPLK), the big data analytics software solutions provider, is one such player that is seeing impressive growth. Revenues for the third quarter grew 51% over the year to $78.6 million, compared with the market’s projections of $71.1 million. On an adjusted basis, the company reported a break-even quarter compared with the Street’s estimated loss of $0.01 per share for the quarter.

On a GAAP basis, losses have widened owing to continuing increase in expenses. Research & development expenses grew 71.2%  to $53 million, and sales & marketing expenses grew 61.5% to $53 million. Splunk’s other general & administrative expenses have also seen strong growth at 69.4% to $12.9 million. GAAP losses for the quarter grew from $0.06 per share to $0.16 per share.

By segment, revenues from license sales grew 47.2% to $50.9 million and maintenance and services revenues grew 58.7% to $23.7 million.

For the current quarter, Splunk projected revenues of $88 million-$90 million, compared with the Street’s projections of $86.1 million. The company expects to end the year with revenues of $291 million-$293 million, compared with Street’s projections of $280.7 million.

Splunk’s Acquisition

During the recently ended quarter, they announced the acquisition of mobile analytics solution provider, BugSense Inc. Founded in 2011, BugSense offers analytic solutions that help with the determination of mobile app performance and collects information to troubleshoot problems. BugSense’s solutions help support Android-, iOS- and Windows Phone–based devices. Splunk plans to leverage the acquisition to improve their customer base as they will get access to BugSense’s customer base which includes names like Box, Trulia, Skype, and Yahoo Inc.

Splunk’s Product Offerings

Besides inorganic growth, Splunk is also focused on driving growth through product improvement. In a quarter when big players like Oracle have reported weak results because of weak macroeconomic conditions, Splunk’s increasing product offerings have helped it to deliver strong growth. During the recently ended quarter, it released the upgraded platform for machine data, Splunk Enterprise 6, for general availability and its integrated analytics platform for Hadoop, Hunk. As part of the sharpening focus on the cloud, Splunk also announced the general availability of Splunk Cloud, a new service that takes the Splunk Enterprise to the cloud.

Among other new product launches, Splunk released the Splunk App for Unix and Linux. The new app helps developers by providing them insights into large-scale Unix and Linux environments. Finally, the company released the Splunk App for Okta, which enables Okta service users to leverage the capabilities of Splunk Search Processing Language to manage security by visualizing log-ins and app utilization and monitoring suspicious activity.

Splunk is doing well on the stock market. The stock is trading at $72.16 with a market capitalization of $7.63 billion. It touched a 52-week high of $74.97 earlier last week, having risen significantly since its list price of $17 last year. But Splunk’s profit-generating capabilities remain a matter of concern. The recent acquisition is also expected to continue to add to costs.

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