What happened
Despite a technology sell-off on Thursday, Splunk (SPLK) was surging in morning trading, up more than 8% as of 12:18 p.m. ET.
Chalk up Splunk's surge to a positive earnings report, which was released Wednesday afternoon. In addition, Splunk has been without a full-time CEO since former chief Doug Merritt resigned in November. But in conjunction with the earnings report, Splunk named a successor. Apparently, investors feel good about the choice.
So what
In the quarter ended December, Splunk's revenue outperformed by a lot, growing 21% to $901 million, versus Wall Street estimates of just $776 million. The company also reported an adjusted (non-GAAP) net profit of $0.66 per share, versus an estimate of a $0.19 loss. Additionally, the company guided above consensus for the current quarter.
Splunk may also be an underappreciated cybersecurity play, as management noted on the conference call with analysts that cybersecurity and monitoring makes up about 50% of revenue, with the rest coming from IT infrastructure management and software application observability. Obviously, with Ukraine-Russia tensions escalating and more and more businesses becoming digital, there is strong demand for Splunk's offerings. Of note, Splunk just released its latest updated Splunk Enterprise Security offering, and also won an award from the U.S. Navy last quarter, the Naval Information Warfare Systems Command's Artificial Intelligence Applications to Autonomous Cybersecurity Challenge.
Perhaps just as important as the strong results, Splunk selected a new CEO in Gary Steele, the former founder and CEO of cybersecurity firm Proofpoint, which was acquired by private equity firm Thoma Bravo in 2021. In a press release, Steele said: "I've dedicated my career to helping companies around the world safeguard their data, systems and infrastructure, and know firsthand how critical Splunk's products and solutions have become to customers as they navigate hybrid, multi-cloud environments with increasingly complex attacks and threat actors. Splunk is executing against a tremendous opportunity, and I look forward to working with the team to ensure the business reaches its full potential."
Image source: Getty Images.
Now what
Splunk was my favorite software-as-a-service (SaaS) stock coming into 2022, and that's looking like a good call now following the strong report; Splunk stock is now positive for the year, while the tech-heavy Nasdaq is down in the double-digits.
I was bullish because Splunk traded much cheaper than other software stocks despite having a sticky product and compelling growth runway. Of note, the company's business transition from on-premises perpetual licenses to cloud subscriptions was causing turbulence in its reported accounting metrics last year, and the stock was unduly punished; however, it looks as if this multi-year transition is coming to a close. On the call, management said its revenue will track closer to annualized recurring revenue as it exits the year, and the better-than-anticipated revenue growth outlook showed that.
That being said, the stock is still far, far below its all-time highs -- nearly 50%, in fact. So, if the macroeconomic environment becomes more amenable to high-growth tech stocks (a big if), and if the new CEO can execute, Splunk's surge could just be beginning.
