Expect A Conservative FY18 Outlook From Splunk

Splunk Inc SPLK is scheduled to host its analyst day Thursday. The company is likely to announce a conservative sales outlook for fiscal year 2018, and even modest margin expansion would be impressive “given the ratable mix shift and strong underlying momentum of the overall business,” William Blair’s Bhavan Suri said in a report.

Suri maintains an Outperform rating on the company, saying that the analyst/investor meeting could be “a catalyst for shares.”

Sales Outlook

Despite investor concerns related to a drag on growth due to Splunk’s continued shift to cloud, the company’s sales guidance for 2018 could be in line with or marginally higher than the Street’s growth expectation of 28 percent, Suri mentioned.

An in-line guidance implied ~20 percent license revenue growth and 39 percent maintenance and services growth, versus the consensus FY 2017 outlook of 31 percent and 52 percent growth, respectively.

“We believe this would leave room for Splunk to walk numbers up throughout the year, as we expect the license business to be supported by healthy new customer additions and expansion activity and the subscription business to witness triple-digit growth,” the analyst wrote.

Margin Expansion

Despite the acceleration of Splunk’s cloud business, the company may guide to operating margin expansion of 100–200 basis points.

“Contrary to our expectations for Splunk’s top-line progression throughout the year, we do not anticipate significant upward revisions to margin expectations. Nevertheless, we would view the company’s ability to provide even modest margin expansion as impressive given the ratable mix shift and strong underlying momentum of the overall business,” Suri noted.