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Why Splunk Stock Jumped Sharply on Tuesday

By Daniel Sparks - Jun 22, 2021 at 9:59AM

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The data company is getting a capital infusion.

What happened

Shares of data analytics company Splunk (SPLK -1.31%) popped on Tuesday. The stock had risen about 11.5% at 10:30 a.m.

The tech stock's gain follows news that technology investment company Silver Lake has agreed to buy $1 billion of Splunk convertible notes as part of an investment "to support transformation" in Splunk's business.

A chart showing a stock price rising sharply.

Image source: Getty Images.

So what

"We've significantly evolved our business since we began our transformation to become a cloud-first company over two years ago," said Splunk CEO Doug Merritt in a press release about the investment, "and today's announcement reaffirms the strength of our business fundamentals, cloud strategy and high-growth trajectory."

As Merritt noted, Silver Lake has a good track record of investing in tech companies and helping them accelerate and execute on their transformations.

Now what

Interestingly, Splunk will not use the proceeds from the investment only to fund its transformation and growth initiatives but also to improve its capital structure and potentially even repurchase shares. Along with this transaction, Splunk's board announced the authorization of repurchasing up to $1 billion of its stock. The repurchase plan, however, is primarily intended to offset any dilutive effect of the notes.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Splunk. The Motley Fool has a disclosure policy.

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