San Francisco's Splunk gives off a futuristic vibe about so-called "big data," offering real-time operational intelligence and boasting the ability to parse through terabytes of information from divergent formats and sources. According to its website, it's pursuing "a disruptive new vision [to] make machine data accessible, usable, and valuable to everyone." The type of information Splunk's software mines, monitors, and analyzes includes clickstreams, network activity, and call records.
Granted, Splunk drops some impressive names in its collection of 4,000 customers, including Bank of America, Comcast, and Zynga.
Also granted, Splunk's top line is definitely growing. In fiscal 2012, revenue grew 83% to $121 million, but bear in mind that its annual net loss in fiscal 2012 was larger than in the past, coming in at $11 million. The year before, Splunk's net loss was just $3.8 million.
The revenue growth may sound impressive, but the company points out in its Risk Factors that its sales growth could be lumpy. It offers perpetual licenses, in which fees are recognized upfront, as well as term licenses, when revenue is ratably recognized over the entire term of the license. Therefore, past revenue growth may not be as meaningful a piece of data as investors might think at first glance.
This company has lofty goals in interpreting machine data, but it's most certainly not the only company tackling such needs. Splunk cites formidable competitors in its IPO prospectus that provide similar services like Web analytics, security systems, and business intelligence. These include Google, IBM
It's also worthwhile to note that Splunk is defined as an "emerging growth company" under the (frightening) JOBS Act, therefore it's required to file less information with the public than many other companies do. Brilliant. Ugly IPO Manchester United also enjoyed the "emerging growth company" exemption.
Granted, look up "big data" and you can see why many investors might feel bullish about companies that take data usage interpretations to the next level. Still, I'd rather wait for a far lower price than the skyrocketing one that's presented itself since the company went public, particularly because Splunk isn't even profitable yet.
Like I said, I'm putting a red thumb "underperform" on Splunk in Motley Fool CAPS. You can see my overall CAPS track record here. Let me know what you think of Splunk's future in the comments box below, or make your own CAPScall.
Our analysts have performed deep dives on several of the companies mentioned in this article. If you're mulling stock ideas other than Splunk, check out our in-depth research reports (which include timely updates), on Facebook, Bank of America, and Zynga.