Will Splunk Stock Outpace the S&P 500 Index In 2022?

Author: Finscreener

Estimated read time: 3 minutes

Publication date: 31st Mar 2022 11:11 GMT+1

Splunk (NASDAQ: SPLK) is a California-based company that produces software used in searching, monitoring, and analyzing machine-generated data using a web-style interface. SPLK stock has been prone to volatility and had largely underperformed the market last year. However, this year it has held up really well and has gained almost 22% so far when even many big tech companies have taken a tumble. Therefore, the market is optimistic about Splunk these days.


Splunk will benefit from the rising demand for machine learning

With the huge development in technology over the years, the demand for services like machine learning and artificial intelligence has been on a rise. As per Fortune Business Insights, the machine learning industry which was worth $15.5 billion in 2021, is expected to increase by almost tenfold to $152 billion by 2028 thereby providing a huge opportunity to the companies in this industry to excel.

Splunk is one of the pioneers in the field of machine learning. The company’s highly effective software solution lets users capture, index, and correlate real-time data in a searchable repository and thereafter use that data to generate graphs, reports, alerts, dashboards, and visualizations. 

Also, to generate those outcomes all the work required, such as the identification of data patterns, diagnosing of problems, providing metrics, and many more are performed by it using artificial intelligence.

So, the growth in the application of machine learning will enable companies like Splunk to drive their top-line significantly by applying these booming technical concepts in all their processes and ventures.


Splunk renders high-quality services

Splunk has been offering its machine learning woven solutions across multiple areas and each of the solutions is unique. Due to its top-notch service capability, it has seen subscriptions across the board. 

Global car giant Honda Motors constantly analyses machine data using Splunk’s predictive insights for multiple purposes like catching critical failures, reducing the plant's time-to-repair metric by 70%, or even monitoring air quality inside the facility for ensuring emissions from paint-related production activities stay within regulatory limits thus preventing costly shutdowns.

Similarly, Domino’s Pizza, leverages 15 of its sales channels via Splunk, from smart TV applications to mobile, to smart speakers, Splunk’s services monitor each of them. Splunk is said to offer real-time insights into each of the company’s transactions helping it make improvements on the fly and minimize the effects of incidents and downtime at the same time.


SPLK stock is not profitable

Splunk’s fourth-quarter financials for the fiscal year 2022 has received mixed responses. The company’s revenue for the quarter ending January 31st, 2022 grew by 20.9% year-over-year to $901.12 million with its cloud annual recurring revenue (ARR) showing a 65% improvement. 

However, due to the surge in costs, it ended up generating an operating loss which came at $78.69 million. Overall, its net loss showed a marginal increment to $140.82 million and the loss per share was recorded at $0.88 thus representing a 2.3% year-over-year increase.

For its fiscal first quarter of 2023 Splunk expects to generate revenue between $615 million and $635 million with an operating margin between negative 20% and negative 25%.

Splunk faces stiff competition from the leading players of the big data analytics industry but still has made its mark and is even serving 92 of the Fortune 100 companies at present. The extensive digital transformation around the world as well as the steady increase in the number of cybersecurity threats have provided the company with a wider moat.

Splunk stock closed on March 29 at $142.51. The average analyst target for the stock is $158.67, a potential upside of around 13%. The company is a great buy from a long-term perspective. For the short term, you would do well to look elsewhere.

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