At current share prices near $80, Splunk trades at a $13.00 billion market cap. Still, Splunk's valuation fall in light of these strong results is baffling (it's only in sympathy with the rest of the market, and doesn't make sense on a standalone basis). It is important to note that one of the drivers here is that the weaker macro environment caused many of Splunk's customers to delay their cloud migrations, resulting in higher upfront license revenue. This stands in stark contrast to many other tech stocks that have cut their full-year guidance, citing a number of woes ranging from slowing deal cycles to FX pressures. On a more near-term basis, note that Splunk is one of the only tech companies in the Q2 earnings season to increase its full-year outlook. I see significant opportunity for Splunk to expand its presence outside of the U.S. Currently, only about ~35% of its revenue base comes from international markets (and an even smaller ~20% slice of the cloud business is overseas). Significant international expansion opportunity - Splunk has become a global brand name, and it's time for Splunk to chase more opportunities overseas. These commendations don't come lightly to IT buyers when making a purchase decision. Gartner, the software industry's leading analyst and reviewer, has bestowed the "Leader" designation to Splunk in the security information and event management space, and also named it as the vendor with the highest ability to execute. Industry-wide recognition - More to the point above, it's fine to have competition when Splunk also is widely considered the best-in-breed vendor for machine data analytics. We note as well that Splunk's ~$3.3 billion annual revenue scale makes it twice as large as its next-closest competitor, Datadog. Splunk focuses on visualizing and analyzing machine data (information passively generated by computers, phones, and other endpoints within networks). The company's closest large/public peers are the monitoring companies like Datadog ( DDOG) and New Relic ( NEWR), which primarily focus on monitoring the performance and uptime of applications and infrastructure. It's also the largest company in the space. Splunk isn't without competitors, but the company's focus on machine data is unique. As data volumes continue to explode and companies push the boundaries of how they integrate data into operations and decision-making, Splunk has a tremendous opportunity to derive growth from within its install base. Splunk's platform is charged on a data volumes/computing power basis. Usage-based pricing - Some of the most successful software stocks are usage-based, meaning that revenue climbs proportionally to a customer's usage of the product. But as Splunk has evolved, the company's machine data capabilities are applicable across virtually any industry and across many functions. The use cases for Splunk are infinite - In its early days, Splunk's machine data-mining capabilities were often used for security purposes to flag and respond to anomalies within corporate systems. Here's a full rundown on what I think to be the key bullish drivers for Splunk: This is a fantastic company that now has a powerful ARR base, a best-in-class technology that is widely regarded in the industry, and on track to becoming immensely profitable thanks to its rich gross margin profile and opportunities for operating leverage. Year to date, shares of Splunk are down ~30% - more modest than most tech peers, but still not in line with the vast fundamental wins the company has scored recently, most notably in largely completing its transition to a subscription-based business model. This machine-data platform is one of the most prominent names in big data analytics, and its technology is a mission-critical tool that helps businesses derive insights from data already generated from their internal systems. Splunk ( NASDAQ: SPLK) is one company that bears special mention. The mid-cap tech space, in particular, has plenty of fundamental powerhouses that are trading at fire-sale levels, and investors with cash to deploy can benefit from truly unmissable entry points. As the market retreats deeper and deeper into correction mode, it is an excellent time for brave investors to make long-term plays in fantastic companies that have fallen out of fashion.
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