Understanding Splunk’s Newly Added Risk Factor

California-based Splunk (SPLK) is a software solutions company. Its technology helps customers monitor, analyze, and act on data. The company recently committed to achieving net-zero emissions by 2050.

With this in mind, we used TipRanks to take a look at the latest financial performance and newly added risk factor for Splunk. (See Analysts’ Top Stocks on TipRanks)

Q3 Financial Results

Splunk reported revenue of $665 million for its Fiscal 2022 third-quarter ended October 31, surpassing the consensus estimate of $651 million. Revenue was $559 million in the same quarter last year. An adjusted loss per share of $0.37 beat the consensus estimate of a loss per share of $0.50. The adjusted loss per share was $0.07 in the same quarter last year.

For Q4, Splunk anticipates revenue in the range of $740 million to $790 million. It expects revenue in the band of $2.51 billion to $2.56 billion for Fiscal 2022. (See Splunk stock charts on TipRanks).

Risk Factors

According to the new TipRanks Risk Factors tool, Splunk’s main risk category is Finance and Corporate, representing 35% of the total 46 risks identified for the stock. It recently updated its profile with one new Finance and Corporate risk factor.

Splunk ended Q3 with more than $3 billion in debt tied to convertible senior notes. The company cautions investors that its existing and future debt may limit its operating flexibility. It mentions that the debt may increase its vulnerability in adverse economic conditions. Additionally, the debt could place it at a competitive disadvantage compared to rivals with less debt. Furthermore, servicing the debt may reduce the available cash for working capital and growth investments.

In an updated Legal and Regulatory risk factor, Splunk reminds investors that it does not currently collect sales tax in all its markets because it believes such tax is not applicable. But it may be required to do so in the future as a result of changes in tax laws or the interpretation of existing regulations. Splunk cautions that it could be subject to penalties if authorities in some of its markets assert that sales tax is applicable.

The Finance and Corporate risk factor’s sector average is 40%, compared to Splunk’s 35%. Splunk’s stock has declined about 33% year-to-date.

Analysts’ Take

Needham analyst Jack Andrews recently reiterated a Buy rating on Splunk stock with a price target of $181. Andrews’ price target suggests 59.42% upside potential.

Consensus among analysts is a Moderate Buy based on 14 Buys and 8 Holds. The average Splunk price target of $167.11 implies 41.18% upside potential to current levels.

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