Why Are Splunk Shares Popping Today?

Cisco Systems Inc CSCO made a takeover offer worth more than $20 billion for software maker Splunk Inc SPLK, the Wall Street Journal reports.

• Splunk is currently searching for a CEO after Doug Merritt stepped down in November after roughly six years following dismal earnings reports. Splunk named Chairman Graham Smith as interim CEO.
• Splunk makes software for companies’ information technology and security operations to monitor and analyze data.
• Cisco, run by CEO Chuck Robbins, sells routers, switches and security services, and software products. 
• Cisco already has a data-security partnership with Splunk. It looks to introduce new financial metrics and overhaul its reporting segments to showcase the growth of its software business.
• Software sales accounted for 30% of Cisco’s total revenue in FY21. 
• Cisco aims for subscriptions to generate 50% of annual revenue in FY25, up from 44%. 
• Analyst Rating: Jefferies analyst Brent Thill notes that he has a Buy rating and a price target of $160 (39.7% upside) on Splunk’s shares.
• While the two companies are not yet reported to be in talks, the analyst thinks “certainly strategic value” in a potential deal. 
• While the news is purely speculation, Thill believes that Cisco is a strategic buyer of Splunk and that the transaction would have a lot of potential synergies. 
• He argues that Splunk’s sizable security presence would present a significant opportunity for Cisco, which has been lagging other vendors in the security operations space.
• In observability, the other half of Splunk’s business would naturally complement Cisco’s existing monitoring solutions. 
• It could better position Cisco as an end-to-end platform to compete with rising stars such as CrowdStrike Holdings Inc CRWD, Datadog Inc DDOG, etc. 
• The Cisco-Splunk deal would also help alleviate investors’ concerns regarding the search for a new Splunk CEO, the issues associated with a cloud model transition, and general loss in mindshare. 
• Price Action: SPLK shares traded higher by 6.98% at $122.50 in the premarket on the last check Monday.