Please ensure Javascript is enabled for purposes of website accessibility

Why Splunk Shares Rose 32.4% in May

By Anders Bylund – Updated Jun 2, 2020 at 4:04PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The data analysis expert's mixed earnings report was stronger than it looked.

What happened

Shares of data visualization expert Splunk (SPLK -4.54%) gained 32.4% in May 2020, according to data from S&P Global Market Intelligence. The stock reached fresh all-time highs when the company reported solid first-quarter results on May 21.

So what

Splunk's shares were already on the rise when the earnings report came along, helped by a new cloud-computing partnership with Alphabet (GOOG 0.02%) (GOOGL -0.01%) subsidiary Google.

In the first quarter, Splunk's sales rose 2% year over year to $434 million. The adjusted bottom line swung from earnings of $0.02 per share to a net loss of $0.56 per share. Analysts had been expecting a $0.57 loss per share on revenues in the neighborhood of $443 million. That mixed performance might not sound like a vat of rocket fuel, especially since revenue guidance for the second quarter also fell below analyst projections, but Splunk's shares soared 13% higher the next day.

A businessman's hands holding and using a tablet computer with a line chart on the screen.

Image source: Getty Images.

Now what

Splunk's customers are trading in their old-school software licenses for cloud-service contracts by the busload. Cloud-service sales rose 81% year over year in the first quarter while license revenues fell by 27%. This business mix hurts the company's top line in the short run but promises to replace those lost license sales with subscription-style renewable revenues for years to come. The software sector as a whole has embraced this business model in recent years, and Splunk is a little late to the party. But you know the old adage -- better late than never.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anders Bylund owns shares of Alphabet (A shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Splunk. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Splunk Stock Quote
$79.53 (-4.54%) $-3.78
Alphabet Inc. Stock Quote
Alphabet Inc.
$101.42 (-0.01%) $0.01
Alphabet Inc. Stock Quote
Alphabet Inc.
$102.24 (0.02%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.