Is Splunk Inc a Buy After Losing More than 20% in 2022?

Author: Finscreener

Estimated read time: 4 minutes

Publication date: 29th Jun 2022 10:58 GMT+1

The decade-high inflation levels and the consistently increasing interest rates have led to bearish market sentiment and many growth stocks have tanked miserably. The tech sector has been one of the most affected ones due to these macro factors. 

California-based Splunk Inc (NASDAQ: SPLK), a data management company is one such beaten-down growth stock. It has lost close to 20% in the first six months of 2022 and is trading close to its 52-week low. 

However, the stock is still attractive and the company has a lot of upside potential. Its Splunk Platform is a real-time data platform for the collection of data, streaming, indexing, search, reporting, analysis, machine learning, alerting, and monitoring, and also possesses data management capabilities. The company also has Splunk Solutions, Splunk IT Solutions, as well as an ecosystem of solutions containing various pre-built tools.


Splunk is growing through innovation

It is often said that innovation is the key to success and Splunk through its consistent innovation has been heading towards its goals. The company has been actively innovating its platform and is entering into newer agreements with more organizations to speed up its growth process.

At the recently held Global Partner Summit, Splunk announced several partnerverse programs to help its 2400+ partners expand and differentiate their offerings. As per the said program, Splunk will provide many new features and resources such as the development of necessary skills, achievement of correct certifications, or building up capabilities to help the customers in order to support the expansion of its global partner network. 

Apart from the company's partners, the customers will also be able to realize their vision for security, resilience, and innovation through this program.

Again, as per another recent agreement, the company will also help Nubank, which is also one of the largest digital financial services platforms in the world, to support about 60 million digital banking customers in the Latin America region. The said partnership will let Nubank use Splunk’s cloud platform to improve its interaction across departments. Moreover, the company will also provide Nubank with its information requirements.

The pandemic had caused a ruckus in the market but there have been indeed a few industries that have actually got benefitted. The cloud computing industry is one of them. According to a survey by the Markets and Markets, the global cloud computing market might reach $947.3 billion by 2026 from $445.3 billion in 2021 growing at a CAGR of 16.3% between the said period. 

The machine learning segment might grow ten-fold to $209 billion by 2029. Splunk is one of the more notable companies in this space and should be able to take immense benefit out of these emerging opportunities.


Splunk beat revenues expectations in Q1

Splunk’s earnings for Q1 of fiscal 2023 beat market estimates. The company’s revenue for the quarter grew 34% year-over-year to $674 million with the revenue from the cloud segment that formed approximately 50% of the total revenue increasing by 66%. It also raised its full-year revenue and profitability outlook and is expecting to earn between $3.3 billion and $3.35 billion in revenues and at least $400 million in operating cash flows by the end of this year. 

Further, the retention rate for the quarter was as high as 130% and the company had 329 customers having cloud ARR greater than $1 million showing a 62% year-over-year increment during the quarter. However, Splunk is still booking operating losses and for the last quarter alone it was almost $292 million.

As of this report, Splunk is trading at $93 and the average analyst target price for the stock is $135.73, a potential upside of over 45%.

Splunk might not be profitable now but the above-mentioned factors indicate the company is moving in the right direction. It has been substantially progressing towards delivering game-changing technology which is increasing its popularity further. Splunk is a good addition for a long-term investor.

Disclaimer: The writer is an experienced financial consultant who writes for The observations he makes are his own and are not intended as investment or trading advice.