What happened
Shares of data analysis expert Splunk (SPLK) rose 42.8% in 2019, according to data from S&P Global Market Intelligence. The company beat Wall Street's earnings and revenue expectations in all four of the earnings reports it produced last year, but three of these events still led to significant sell-offs. The last report of 2019, on the other hand, triggered a 19% jump just a couple of weeks before the end of the year.
So what
Splunk may have delivered actual results ahead of analyst expectations over and over, but the market wasn't impressed when these surprises were paired with merely in-line guidance for the next period. That's life in the fast lane -- high-growth companies like Splunk are often punished for achieving a smaller surprise than they delivered in recent quarters, or for making their next-quarter guidance a bit too easy to reach.
In November's Q3 report, Splunk saw sales rise 30% year over year to $626 million while adjusted earnings jumped 53% higher, landing at $0.58 per share. Analysts would (theoretically) have settled for earnings near $0.54 per share on revenue in the vicinity of $604 million, but Splunk also set its fourth-quarter sales guidance $12 million ahead of the then-current Wall Street view. That was a welcome break from three straight in-line guidance updates.
Image source: Getty Images.
Now what
This company is not only growing its top line quickly, but the portion of these sales that qualifies as recurring revenue under long-term contracts is also expanding. That leads to stable and predictable results -- not only on the top line but cascading down the entire income statement. Moreover, Splunk's flexible data analysis tools are relevant and helpful to lots of use cases on a massive scale.
"We believe data is the answer to many of the world's most pressing problems and its greatest opportunities. It also represents a necessary strategy for all organizations to thrive, let alone survive, in this new paradigm," said CEO Doug Merritt in the third-quarter earnings call. "From improving corporate performance, to optimizing government responsiveness, to fighting crime, to medical research, to firefighting or to the rollout of Porsche's new electric car, we believe every problem is a data problem, and our customers think so, too."
