“Technology is the oil of the new century” goes the narrative and drives the 16 year old “Data-to-Everything” stock Splunk . Not exactly a household name right now, but their aim is to radically change how business operates in the digital age – so, they’re on their way!
Splunk is a software company with a data-to-everything platform that enables customers to collect data and then analyze it; necessary to gain insight on how to improve their business. Splunk is able to process all of this collected data, regardless of format or industry. Customers are able to very quickly get valuable analytical answers and improve their bottom line.
How Do They Make Money?
Splunk can sell their services either through perpetual license, or term and cloud licenses. In a perpetual license, the customer pays for all services upfront and gets to use the software indefinitely. In term and cloud licenses, the customer uses the software for a specified time period and pays annually. The customer downloads the software and uses it directly. Cloud licensees use the software over the cloud. By the end of 2019 Splunk new sales will be term or cloud license subscription revenue models that should increase its cash flow over the long term.
In 2019 they acquired SignalFX which provides cloud monitoring in real time. Splunk is now a leader in observing every stage of a company’s cloud journey. Splunk has made 10 acquisitions in a short period of time, including Matafor, Caspida, KrptonCloud and Omnition. They also have partnerships and integrations with Cisco (CSCO), SAP ad Accenture, as well as a $150 Million fund named Splunk Ventures.
Splunk faces intense competition. The main competitor is Elastic (ESTC) with growth in security analytics from commercializing their open source software. The future of Splunk could place them with giants Salesforce (CRM), SAP (SAP) and Oracle (ORCL).
Is Splunk Risky?
Many companies make use of debt which assists a company to move forward; that is, until the company has trouble paying it off. But the real question is if debt is making Splunk risky. Its liquid assets are balanced with its liabilities. It also has more cash than debt, so it can probably manage its debt. Future profitability is to focus on strengthening their balance sheet.
Splunk stock has been rocky this year and has struggled lately. At the same time, the explosion of data has not slowed down. Humans can only do so much, and then let computers do the legwork. Splunk looks perfectly positioned to capitalize on these tailwinds with strong revenue growth in the future.
Splunk is not yet profitable; they will probably reach profitably within a couple of years. Their strong balance sheet will help the losses in the meantime. Analysts forecast a target share price of $130.
Are you a Bull or a Bear?
Date October 12, 2019 Stock: Splunk – Share price closed @ $120.81
If you’re a Bullish Mom and think Splunk will go up, try the January 17, 2020 Expiration Date – CALL $115.00 Bid; and $110.00 Ask strike prices. Premium is $4.40 (mid @$3.40) debit to pay = Long Call Vertical Spread on www.TDAmeritrade.com
On the other hand, Mom, if you think Splunk is bearish and will go down, try the Expiration Date January 17, 2020 – PUT $115.00 Ask; and $110.00 Bid strike prices. Premium is $2.20(mid @1.71) debit to pay = Long Put Vertical Spread on www.TastyWorks.com
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