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Why Splunk Stock Was Slammed on Thursday

By Daniel Sparks - Dec 3, 2020 at 2:31PM

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The tech company's third-quarter revenue missed analysts' estimates by a wide margin.

What happened

Shares of data monitoring and analytics platform provider Splunk ( SPLK -5.30% ) were hit hard on Thursday after the company delivered a disappointing third-quarter report. The stock fell by as much as 25.9%, and as of 2:24 p.m. EST, was trading down by about 21%.

A chart showing a stock price plummeting

Image source: Getty Images.

So what

Splunk's Q3 results and management's guidance for Q4 were both well below analysts' expectations. Revenue came in at $559 million, down 11% year over year. On average, analysts were expecting revenue of $613 million. Splunk also reported an adjusted loss per share of $1.26 -- far behind the $0.09 per share in profit analysts had been modeling for.

The company's top-line weakness derived from a sharp drop in its  license revenue. Its cloud services revenue, however, soared by 80% year over year to $145 million.

"While the environment was a challenge in the quarter, we are enthusiastic about the large and growing opportunity ahead and remain confident in our long-term growth trajectory," said Splunk CFO Jason Child in the earnings release.

Now what

Management said it expects fourth-quarter revenue to be in the $650 million to $700 million range. This compares to the analysts' consensus forecast of $778 million.

Still, the tech company's fast-growing cloud business has management optimistic despite the worse-than-expected results. "Our cloud momentum continued in the third quarter, we exceeded our cash flow target significantly and we ended with Cloud [annual recurring revenue] up 71% year-over-year -- among the highest growth rates in the industry," said Child.

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