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Why Did Splunk Stock Rise in Thursday’s Pre-Market Session?

Story Highlights

Splunk reports a year-over-year improvement in revenues and earnings. Further, its upbeat guidance has raised investors’ sentiments.

Splunk Inc. (NASDAQ: SPLK) has reported better-than-expected results for the first quarter ended April 30, 2022. The company develops and markets software solutions that enable enterprises to gain real-time operational intelligence by harnessing their data.

Following the results, shares of the company rose 5.1% to close at $97.88 in Wednesday’s extended trading session. The stock further surged 6.8% at the time of writing.

Results in Detail

Quarterly revenues stood at $674 million, up 34% year-over-year, surpassing the consensus estimate of $628 million. Cloud services revenue (up 66.5% year-over-year) and license revenue (up 29.7% year-over-year) stood at $322.9 million and $194 million, respectively.

The company reported a loss of $0.32 per share, compared with a loss of $0.91 in the same quarter last year. Further, the figure was lower than the consensus loss estimate of $0.74 per share.

Splunk recorded total annual recurring revenue (ARR) of $3.21 billion, up 30% year-over-year. Meanwhile, customers with cloud ARR greater than $1 million rose 62% from the previous year to 329. Cloud dollar-based net retention rate during the quarter was 130%.

The CEO of Splunk, Gary Steele, said, “As our continued growth and strong customer retention demonstrate, we are the system-of-record for our customers and one that’s deeply embedded within their organization’s security and IT operations.”

Jason Child, the CFO of Splunk, said, “Based on our strong execution, we are raising our full year revenue and profitability outlook and reaffirm our operating cash flow expectation of at least $400 million.”

Outlook

For the second quarter of the Fiscal Year 2023, Splunk projects revenues between $735 million and $755 million.

For Fiscal 2023, revenues are expected to be in the range of $3.3 billion and $3.35 billion, up from $3.25 billion and $3.3 billion anticipated earlier. The total ARR is expected to be $3.9 billion.

Stock Rating

Following the release, Robert W. Baird analyst Jonathan Ruykhaver maintained a Buy rating on Splunk with a price target of $135 (45% upside potential from current levels).

The analyst said, “Cloud mix continues to increase which combined with stable contract duration and strong renewal activity should support +$400 mil in FY23 operating cash flow. We were pleased to hear CEO Gary Steele’s commentary focused on execution to better align organizationally with customer success over time.”

Overall, the Street is cautiously optimistic about the stock and has a Moderate Buy consensus rating based on 17 Buys and six Holds. Splunk’s average price forecast of $141.10 implies that the stock has upside potential of 42.53% from current levels.

Bloggers’ Stance

TipRanks data shows that financial blogger opinions are 76% Bullish on SPLK, compared to a sector average of 67%.

Takeaway

Splunk has performed decently in the quarter, as its key metrics showed improvement. Also, increased guidance reflects management’s confidence in the company’s near-term performance.

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