Splunk Drops 10% After Results, Guide Down 'Not Expected'

© Reuters. Splunk (SPLK) Drops 10% After Results, Guide Down 'Not Expected'

By Senad Karaahmetovic

Shares of Splunk (NASDAQ:SPLK) are down over 10% after the company reported results.

Splunk reported revenues of $798.8 million, better than the analyst estimate of $747.4 million. Annual recurring revenue (ARR) came in at $3.33 billion, slightly below the estimate of $3.42 billion.

For this quarter, the company said it expects to record revenues between $835 million and $855 million, which is ahead of the $833.2 million consensus.

“We also delivered substantially higher non-GAAP operating margin for the quarter, driven by our laser focus on balancing growth with profitability,” said Gary Steele, president and CEO of Splunk.

On a full-year basis, the company sees revenues between $3.35 billion and $3.4 billion, which is modestly higher than the prior guidance of $3.3 billion to $3.35 billion. However, shares plunged on the guide down as far as the full-year ARR is concerned. Splunk cut its guidance on this front by 6% to $3.65 billion.

A BTIG analyst has “seen worse” results than what Splunk delivered for Q2. The analyst maintained a Buy rating and a $132 per share price target.

“We were not expecting a guide down and were disappointed in the print. But there were some positive aspects of the report with expanding operating margins and an improved FCF outlook. While we cannot ignore the impact of a weakening economy on demand, we think there is some extra conservatism in SPLK’s ARR guidance, because Q2 represented the first full quarter with Gary Steele as CEO,” the analyst wrote in a note.

A Barclays analyst said the market is not impressed by cloud deceleration.

“The wrong revenue group (term license contracts) outperformed in Q2 while the all-important cloud business missed and hence investors will not be overly happy. However, we believe management’s assertion that the majority of this is driven by a simple delay of cloud migrations for large on-premise customers. This is annoying, but does make sense given the current environment and should not be a game changer for investors,” the analyst said.