Take a peek outside, investor, and what trends do you see?
- Aging populations needing more health care.
- Modernizing countries requiring more energy.
- Greater use of information technology to drive all aspects of business.
Now come back to your computer, and let's dive into a recent IPO that offers investors a piece of one of these trends.
Transforming data
Data roams free and wild around corporations. Data borne from different applications, servers, network doohickeys, security devices, websites, operating systems, call records, and other digital widgets. Now, companies are realizing the value of using this data to improve their businesses. Splunk
Who wants to cut up data? Companies with big pockets like Autodesk, Bank of America, Comcast, Viacom, and Zynga, which represent just a few of Splunk's 3,700 customers. What do companies achieve by analyzing this data? Splunk offers a few examples in its registration statement.
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Expedia
(Nasdaq: EXPE) -
salesforce.com
(NYSE: CRM)
The competition
Of course, Splunk isn't alone in this business, where it's achieved gross margins of 90% over the past three years. Splunk's competitors consist of heavyweights like EMC, IBM, Oracle
What edge does Splunk have? It holds only two patents, one for "organizing and understanding machine data through the use of a 'machine data web,'" and the second for organizing, indexing, searching, and presenting time-series data. But unlike most large business-intelligence software, Splunk champions ease of use with dashboards that business and executives can edit, as opposed to just the IT employees.
The case can also be made that there is plenty of business to share, with the size of the "big data" market estimated to be between $17 billion and $30 billion in 2015, based on reports from Wikibon and IDC. This is up from the current year's market-size estimates of $5 billion.
Leadership
Splunk CEO Godfrey Sullivan has an impressive record, most significantly leading enterprise-software company Hyperion. There, he doubled revenue to almost $1 billion before the company was acquired by Oracle for more than $3 billion. And if you like insider ownership, after the IPO Sullivan owns 7.1% of Splunk, and co-founders Erik Swan and Robin Das own more than 8% combined.
Value
The IPO saw Splunk shares initially priced at $17 jumping to $32 before closing the week over $36. IPOs, especially of young companies that have yet to post profits, typically underperform the market for up to three years. Splunk's shareholders have a 180-day lock-up period where shareholders of more than two-thirds of the company's stock are not allowed to sell. Once that lock-up period ends, those shareholders may want to reduce their holdings, and the stock price could fall. For example, LinkedIn's
LNKD Total Return Price data by YCharts
Put it on your Watchlist
Splunk could be a solid buy, backed by the trend of data, an easy-to-use product, and great leadership that's heavily invested in the company. For now, I'd wait until the IPO excitement dies down and keep an eye out for when its lock-up period plans to expire around October.
Splunk isn't alone in cashing in on the evident growth trends around health care, energy, and IT. In fact, one health-care stock has its focus on our aging joints and provides a system for knee and hip replacements. Find out which stock, along with our Rule Breakers investing philosophy, by reading our free report: "Discover the Next Rule-Breaking Multibagger."
