Why Splunk, Inc. Just Dedicated $100 Million to Philanthropy

Image source: Splunk, Inc.

Splunk (SPLK) might be able to boast that it provides the world's leading real-time operational intelligence software platform. But the company isn't content hoarding all this high-tech innovation for itself. In a surprising announcement last week, Splunk promised to commit at least $100 million "to bring technology resources to the world."

Socially responsible technology

More specifically, Splunk formed Splunk Pledge through its existing Splunk4Good initiative. As part of that pledge, Splunk will donate a minimum of $100 million over the next 10 years in software licenses, training, support, education, and volunteer work to both nonprofit and educational organizations, all with the aim to "support academic research and generate social impact."

Splunk CEO Doug Merritt added:

Splunk is deeply passionate in our belief that big data can bring societal good. At nonprofits, IT budgets typically average one percent -- making it challenging to fully leverage technology to accomplish their mission. By committing to help nonprofits and educational institutions with resources readily available, like free licenses and support, free education, and volunteerism by our staff, we can make a difference in the world.

Digging deeper

First, Splunk Pledge will start with free licenses, training, and support to help nonprofit and educational organizations make the most of their existing budgets "and deliver on their core missions." 

Then again, that's partly the point of Splunk's operational intelligence platform, anyway. Through Splunk Pledge, according to Splunk's press release, these organizations will not only save on the cost of that software and related training to use it, but also ultimately "reduce operating costs, improve their cybersecurity posture, streamline IT operations, perform research, analyze diverse data sources, and gain visibility into their infrastructure."

Also as part of the new initiative, Splunk announced that it will expand the Splunk Academic Program on a global scale. As it stands, the Splunk Academic program already reaches 339 institutions in the U.S., which collectively host over 5 million students through Splunk partner Internet2, an Internet research and education network.

Finally, Splunk employees will together dedicate up to 60,000 hours of paid volunteer work each year, supporting "organizations, causes and social issues they are passionate about."

Can Splunk afford it?

But however great its intentions, that $100 million admittedly seems aggressive at first glance for a company that's not only still investing heavily in top-line growth, but also operating at a loss based on generally accepted accounting principles (GAAP). Last quarter, for example, Splunk's revenue grew an impressive 43.4% year over year, to $212.8 million, and translated to a GAAP net loss of $86.6 million, or $0.65 per share.

However, I've written before that Splunk isn't alone in being perfectly content operating this way for now. It's not uncommon for companies in young, high-tech industries to forsake bottom-line profitability in favor of taking market share and increasing revenue in their early stages of their growth. Splunk also typically generates healthy operating and free cash flow each year, and ended last quarter with no debt and more than $1 billion in total cash and investments.

What's more -- and even putting aside the fact Splunk won't remain unprofitable forever -- a large chunk of each years' $10 million pledge over the next decade will come in the form of free software. The incremental cost issuing free licenses of that software is relatively small for Splunk, and shouldn't significantly deplete its cash resources. In addition, through volunteerism and training, Splunk should enjoy the harder-to-measure benefits of allowing its employees to use their products for noble causes they care about, which should simultaneously increase morale and reduce employee turnover.

Relatedly, there's the matter of watching Splunk simply doing the right thing, which speaks volumes about its culture and admirable long-term goals. For investors looking for a socially responsible business about which they can feel good owning shares, that's why I continue to believe Splunk is worth a look.