What happened
Shares of big data analytics and systems monitoring expert Splunk (SPLK +0.00%) rose 10.8% in December 2022, according to data from S&P Global Market Intelligence. The jump hinged on an impressive earnings report at the end of November, which inspired a 17.8% surge on Dec. 1. However, the rest of the month was dominated by macroeconomic swings that didn't leave much distance between Splunk's stock performance and the broader market's.
So what
Splunk's third-quarter report showed 40% year-over-year sales growth while the bottom line swung from a small loss to a robust profit. Adjusted earnings of $0.83 per share more than tripled your average Wall Street analyst's estimate, and the top-line reading of $930 million exceeded the analyst consensus by 10%. Cloud-based sales increased even faster at a 54% clip and accounted for 32% of Splunk's total revenues (up from 23% a year ago).
Several analysts celebrated Splunk's robust growth and successful migration onto a cloud-based platform while noting that the company's clients have limited budgets for expanding their systems monitoring efforts. Hence, Splunk saw bullish analysts reducing their target prices on the stock even though their "buy" ratings were untouched.
The stock zigged and zagged around the S&P 500 index for the rest of the month. By the end of New Year's Day, Splunk's market performance differed 0.1% from the broader market's moves starting on Dec. 1. On a slightly larger scale, Splunk's stock underperformed the S&P 500 by 6% in 2022.
NASDAQ: SPLK
Key Data Points
Now what
Splunk's financial results are often impressive, its free cash flows are on a steady rise, and the market for powerful data analytics tools is not going away. These details work in Splunk's favor in the long run, as long as the company can keep up its muscular performance.
That being said, the company can't rest on its laurels as it faces plenty of competition for large contracts. Some of the most important rivals are much larger and more well-heeled than Splunk, while others are freely available open-source solutions. As a result, management must thread a narrow needle to put up an effective fight on both sides of that coin.
I'm not exactly a buyer of Splunk stock right now because there are too many high-octane growth stocks on fire sale today with more consistent business results and deeper price dips. The company does deserve a second look, one or two quarterly reports down the road, but I don't mind staying on Splunk's sideline for now.
