BofA Raises Splunk's Target On Accelerating Cloud Transition

Splunk Inc’s SPLK shares declined 1.2% despite the company reporting strong quarterly results with accelerating cloud momentum, according to BofA Securities.

The Splunk Analyst: Kash Rangan maintained a Buy rating for Splunk, while raising the price target from $249 to 260.

The Splunk Thesis: Splunk is well past the cloud inflection point and its quarterly results provide confidence in the company being able to ramp up revenues to $5 billion in the next three to four years, Rangan said.

He added that cloud contributed 53% of the company’s software bookings in the fiscal first quarter and could reach 60% in fiscal 2021.

“The cloud expansion rate of 132%, a first-time disclosure, is a very solid metric. Furthermore, we believe that the total expansion rate is likely even higher,” the analyst wrote in a note. Although Splunk’s revenue guidance misses Street expectations, Rangan noted that the company’s revenues were transitioning into “forward-looking metrics” like ARR (annual recurring revenue) and cRPO (current remaining performance obligations).

The analyst expects macro uncertainty and longer sales cycles to be near-term headwinds. He noted, however, that Splunk “is one of the few software companies to not lower its targets, and actually accelerate through COVID-19.”

SPLK Price Action: Shares of Splunk were down by 1.2% to $214 at the time of publication Thursday.