What happened
Shares of data visualization expert Splunk (SPLK +0.00%) 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 +3.79%) (GOOGL +4.31%) 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.
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.
