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Is Splunk Heading for a Thunk?

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Facebook (NYSE: FB  ) is viewed as an IPO failure for several reasons, including short-term stock performance. Some recent IPOs have fared better in their nascent histories. Take enterprise software IPO Splunk (Nasdaq: SPLK  ) , which has more than doubled since its public debut in April. I'm so dubious of this stock's run-up that I'm putting an underperform CAPScall on it in our Motley Fool CAPS database.

San Francisco's Splunk gives off a futuristic vibe about so-called "big data," offering real-time operational intelligence and boasting the ability to parse through terabytes of information from divergent formats and sources. According to its website, it's pursuing "a disruptive new vision [to] make machine data accessible, usable, and valuable to everyone." The type of information Splunk's software mines, monitors, and analyzes includes clickstreams, network activity, and call records.

Granted, Splunk drops some impressive names in its collection of 4,000 customers, including Bank of America, Comcast, and Zynga.

Also granted, Splunk's top line is definitely growing. In fiscal 2012, revenue grew 83% to $121 million, but bear in mind that its annual net loss in fiscal 2012 was larger than in the past, coming in at $11 million. The year before, Splunk's net loss was just $3.8 million.

The revenue growth may sound impressive, but the company points out in its Risk Factors that its sales growth could be lumpy. It offers perpetual licenses, in which fees are recognized upfront, as well as term licenses, when revenue is ratably recognized over the entire term of the license. Therefore, past revenue growth may not be as meaningful a piece of data as investors might think at first glance.

This company has lofty goals in interpreting machine data, but it's most certainly not the only company tackling such needs. Splunk cites formidable competitors in its IPO prospectus that provide similar services like Web analytics, security systems, and business intelligence. These include Google, IBM (NYSE: IBM  ) , and Oracle (Nasdaq: ORCL  ) .

It's also worthwhile to note that Splunk is defined as an "emerging growth company" under the (frightening) JOBS Act, therefore it's required to file less information with the public than many other companies do. Brilliant. Ugly IPO Manchester United also enjoyed the "emerging growth company" exemption.

Granted, look up "big data" and you can see why many investors might feel bullish about companies that take data usage interpretations to the next level. Still, I'd rather wait for a far lower price than the skyrocketing one that's presented itself since the company went public, particularly because Splunk isn't even profitable yet.

Like I said, I'm putting a red thumb "underperform" on Splunk in Motley Fool CAPS. You can see my overall CAPS track record here. Let me know what you think of Splunk's future in the comments box below, or make your own CAPScall.

Our analysts have performed deep dives on several of the companies mentioned in this article. If you're mulling stock ideas other than Splunk, check out our in-depth research reports (which include timely updates), on Facebook, Bank of America, and Zynga.

Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Oracle, Bank of America, Facebook, International Business Machines, and Google. Motley Fool newsletter services have recommended buying shares of Google and Facebook. Motley Fool newsletter services have also recommended creating a synthetic long position in International Business Machines. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (4) | Recommend This Article (7)

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  • Report this Comment On September 22, 2012, at 1:02 AM, ShadowStockBlog wrote:

    Extremely well written article!

    I dont get it.

    Spunk takes system log files (simple text files) to find potential solution to problems. It searches for key words you ask like fail, error or what may seem relevant and displays the related information like time, user id, etc that are found in a log files.

    Okay it may be a bit of an over simplification but there are many ways, even much better approaches to analyze machine data/log files and display results.

    I don't get the 23 times unprofitable revenue valuation coupled with the lockup of shares expiring middle of October.

  • Report this Comment On September 24, 2012, at 10:40 AM, txwonk wrote:

    Let me be the first to say it: SPLK is to Big Data what GOOG is to Search Engines. While everyone was drooling and anticipating the FB IPO, I had the opportunity to listen to the CEO of SPLK being interviewed by NPR in an hour interview. He explained what big data is, all the various applications, and how his company has the technology that will bring businesses and security systems to the next level.

    I noticed with some amusement that the Street did not notice SPLK until the first earnings. Instead, investors had flocked to PANW because of the mention of "firewalls". will all find out later that firewalls will be "old technology". With applications that SPLK offers, one can see a hacker approaching a website or system in exploratory attempts to breach the firewalls. Yes, SPLK has the technology. This is why over 278+ major universities have embraced it. When they say the University of Texas is enthusiastic (what they mean is some of the most serious computer science geeks in the world love SPLK). I know how academia recognizes new technology before the public does. I was in academia and was using Google for years before the general public even became aware of the Internet or what a search engine was.

    SPLK also can help business by tracking customer preferences. SPLK has applications that the CIA would love to have as the only favored customer to use it.

    I would be willing to park a significant chunk of my Roth Ira on SPLK. really is not fully understood just yet. Don't worry, you will get it in time. Those of us who get it early will be richer.

  • Report this Comment On September 24, 2012, at 11:58 PM, ShadowStockBlog wrote:

    "Let me be the first to say it: SPLK is to Big Data what GOOG is to Search Engines."

    That comparison is just idiotic. I'm sure the text based event logs contain useful information but remember countless products can access this data and create reports, dashboards.

    Does SPLK have any software patents based on new technology?? nope.

    CEO Mr Sullivan is 58 years old. I'm very familiar with his tenure at Hyperion software. 58 year old Mr Sullivan is not the Google of Big Data. What innovative technology software patents exist that would warrant Spunk's calling themselves the Google of big data. Google has over 20,000 patents.

    "I would be willing to park a significant chunk of my Roth Ira on SPLK. really is not fully understood just yet. Don't worry, you will get it in time. Those of us who get it early will be richer."

    Remember Google sells at 4 times sales and is very profitable. SPLK trades at 22 times sales and losing serious money. Good luck with that investment.

    Insiders will make their money. Splunk is her today but soon gone tomorrow.

  • Report this Comment On November 05, 2012, at 8:57 AM, TMFSpiffyPop wrote:

    Alice, hey, I just love that you made a CAPScall! Great job. Also, nice call so far.... --David

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