Will Splunk Earnings Keep Lagging Its Sales Growth?

Splunk (NASDAQ: SPLK  ) will release its quarterly report on Thursday, and investors have been quite pleased with the massive run higher that the stock has made over the past nine months, with shares having nearly doubled. Yet even though the high-growth company has seen sales soar, its success hasn't yet translated into bottom-line profits for Splunk earnings. That isn't unusual for young businesses still in their hyper-growth phases, but how long will investors have to wait for Splunk to turn profitable?

Across the technology industry, businesses have started taking a hard look at all the data they've managed to collect about their customers and their own internal business practices. With so much information to sift through, Splunk has sought to give customers products that will help them analyze that data and get the answers they need to build their own success. Let's take an early look at what's been happening with Splunk over the past quarter and what we're likely to see in its report.

Stats on Splunk

Analyst EPS Estimate

($0.03)

Year-Ago EPS

($0.01)

Revenue Estimate

$62.97 million

Change From Year-Ago Revenue

42%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

When will Splunk earnings go positive?
Analysts have marked down their views on Splunk earnings in recent months, tripling their initial loss projections for the July quarter and cutting their expectations for the current fiscal year by $0.01 per share. Yet that hasn't stopped the stock from continuing its impressive run, rising another 7% since late May.

The conundrum that investors face with Splunk is the same thing that plagues many high-growth companies: When will growing revenue will translate into profits? Immediately after Splunk's April-quarter release, the stock fell as the company failed to produce the earnings beat that investors had come to expect in past quarters. Yet those losses proved short-lived, as shareholders apparently realized that long-run growth trends should eventually start to support higher profits.

Splunk faces plenty of competition in big data, with giants IBM (NYSE: IBM  ) and Oracle (NYSE: ORCL  ) having turned their attention to adding data-analytics capabilities to their broader offerings in the space. IBM reported double-digit growth in its business analytics software division during its second quarter, representing a much faster-growing segment than some of its poorer-performing legacy businesses. Oracle, meanwhile, failed to meet expectations in its earnings report in June, but it has sought out partnerships with major companies with a presence in cloud computing to drive its own cloud database offerings and support big-data initiatives.

One interesting threat to Splunk and its peers could come from the heightened attention that government data-snooping efforts have gotten recently. Already, many consumers find it somewhat unnerving to find highly targeted ads based on information that they thought was private, and ironically, as Splunk and others develop tools that become more effective at mining data, the backlash could become even more severe.

In the Splunk earnings report, watch to see whether the company can reverse its earnings disappointment from its previous quarter. If it can reassure investors that profits will eventually result from strong revenue growth, then Splunk has plenty of upside potential left.

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