Splunk Has A 'Clear Path' To $2 Billion In Sales

After attending the recent Splunk Inc SPLK Investor Day event, William Blair analyst Bhavan Suri isn’t concerned about the company’s light fiscal 2018 revenue growth guidance. According to Suri, Splunk’s initial guidance suggests 26 percent revenue growth in 2018, slightly below consensus Street estimates of 28 percent.

“The shortfall was not attributed to a large uptick in ratable mix, as some investors anticipated (ratable mix is expected to be roughly 50% versus 47% in fiscal 2017), but rather management’s view that enabling the salesforce to make the transition to primarily selling subscription contracts could cause some disruption during the year,” Suri explains.

Suri believes the new guidance is solid and wisely conservative.

In addition to revenue guidance, Splunk reiterated its prior projections of 1-2 percent annual operating margin growth over the next three years, suggesting 7-8 percent operating margins in fiscal 2018.

Perhaps most importantly, Splunk revealed 2020 targets of $2 billion in revenue and operating margins of 12-14 percent.

“On balance, we view these targets as achievable on the basis that our ongoing research suggests that Splunk should be able to leverage its leading industry mindshare, differentiated technology, and unique go-to-market capabilities to be the primary beneficiary of string continued demand for performance management and analytics solutions over the next few years,” Suri concluded.

William Blair maintains an Outperform rating on Splunk.