Analysts Cut Price Targets On Splunk After Q2 Performance, Lower ARR Outlook

Splunk Inc SPLK clocked 32% revenue growth in Q2, topping the consensus. Adjusted EPS of $0.09 beat the consensus.

RBC Capital analyst Matthew Hedberg maintained Outperform and cut the price target from $143 to $139. Splunk delivered a mixed quarter where macro headwinds led some customers to delay cloud transition or expansions, resulting in lower total and cloud ARR, he noted. 

That said, Hedberg was encouraged with better profitability metrics as he believes Splunk is in the early innings of becoming more efficient. While the cloud progress on a more extensive renewal base is disappointing, he remains encouraged with the self-help aspect of efficiency gains. 

BMO Capital analyst Keith Bachman maintained Outperform and cut the price target to $120 from $125. Splunk reported a disappointing quarter, with slowing cloud migrations as the primary cause of missing ARR and lowering FY23 ARR guidance, Bachman noted. 

In contrast, attrition and DBNR remain healthy. Also, margins continue to improve under new leadership, which the analyst thinks helps support the shares in the current environment. 

Barclays analyst Raimo Lenschow maintained an Overweight and price target of $140. Optically, the wrong revenue group (term license contracts) outperformed in Q2, while the all-important cloud business missed, and investors will not be overly happy, Lenschow noted. 

Lower durations and cloud migrations hurt ARR but should not impact revenue, which is why FY23 guidance came in. The analyst continues to like Splunk, given its low valuation. 

Mizuho analyst Gregg Moskowitz reiterated Neutral and cut the price target to $115 from $120. The results and outlook disappointed Moskowitz. 

He believes SPLK faces significant competitive challenges and remains concerned about whether it can consistently execute. 

Needham analyst Mike Cikos reiterated a Buy and price target of $118. The results and guidance cuts disappointed investors, as reflected by the price decline, Cikos said. 

The reset was due to a slower pace in Existing Customers' migrations and expansions of Cloud deployments due to a less confident economy, the analyst noted. 

Despite the ARR reduction, management is driving improved profitability - evidenced by the 8% Operating Margin guide (from 2% previously), reflecting new CEO Gary Steele and management's commitment to FCF targets in his view.

Rosenblatt analyst Blair Abernethy reiterated a Buy and cut the price target to $142 from $152. Splunk reported a Q2 revenue beat driven primarily by license outperformance, while Cloud revenue was below the street.

Management noted that Q2 Cloud ARR came below its plan as several customers slowed their large, complex cloud migrations due to budget concerns. Splunk raised its FY23 revenue and margin targets. 

With this note, Abernethy trimmed the FY24 revenue outlook on lower ARR but raised margin expectations as the Company expects to achieve 8% this year (up from 2% prior). 

Price Action: SPLK shares traded lower by 11.9% at $97.20 on the last check Thursday.