What To Make Of The Splunk Sell-Off: Analysts Weigh In

Splunk Inc SPLK shares dropped 8.5% on Thursday after the company reported an earnings beat and a major acquisition.

Splunk’s second-quarter EPS and revenue came in ahead of Wall Street expectations, and the data analysis software company also raised its full-year revenue guidance as well. The biggest surprise was its $1.05 billion buyout of cloud monitoring company SignalFx.

Despite the solid headline numbers, the market was not happy with what it saw from Splunk. Several Wall Street analysts have weighed in on the stock following its eventful report. Here’s a sampling of what they’ve had to say.

Cash Flow Cut

UBS analyst Fatima Boolani said Splunk’s consistently disappointing free cash flow numbers are likely starting to frustrate investors.

“Bookings decelerating to 23% (adj.) and another widely unanticipated cut to FY20E cash flow marking the 3rd for the year, both are likely to frustrate bulls, while intensifying pricing pressure concerns as SPLK unveils revamped pricing,” Boolani wrote in a note.

Bank of America analyst Kash Rangan said the much-anticipated cash flow inflection point is still coming, just not as soon as investors had anticipated.

“The shift to subscription/cloud appears to have gone faster than expected, thereby derailing the cash flow story while actually solidifying the top line,” Rangan wrote.

SignalFX Deal

Wedbush analyst Steve Koenig said the SignalFX acquisition expands Splunk’s business into cloud-based application performance monitoring.

“We’re positive on this move to reignite SPLK’s traction in IT use cases,” Koenig wrote.

KeyBanc analyst Rob Owens said Splunk appears to be capable of absorbing the cost of the SignalFx deal without hurting full-year operating margin.

“This is a direct play on consolidating the fragmentation seen throughout the digital operations management segment, with the Company now having capabilities across investigation, monitoring, analyzing, and acting,” Owens wrote.

Ratings And Price Targets

• UBS has a Buy rating and lowered the price target from $165 to $150.
• Bank of America has a Buy rating and $167 target.
• Wedbush has an Outperform rating and $153 target.
• KeyBanc has an Overweight rating and $151 target.

Splunk's stock traded lower by 8.4% to $117.62 per share at time of publication.

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