Big-data analytics firm Splunk Inc. fell short of Wall Street’s expectations on its second-quarter financial results announced today.
The company, which sells software to help enterprises search, correlate, analyze, monitor and report on data in real time, reported a loss before certain costs such as stock compensation of 33 cents per share on revenue of $492 million, down 5% from a year ago. Wall Street had forecast a loss of 33 cents per share on much larger revenue of $522.1 million.
Splunk also reported a net loss for the quarter of $261.3 million. Its stock fell 3% in after-hours trading as investors digested the news.
The company’s disappointing performance can be explained in part by its ongoing transition from a licensing revenue model to cloud subscriptions, and that shift at least seems to be progressing well.
Splunk Chief Executive Doug Merritt (pictured) said the company’s cloud business had accelerated in the quarter, with sales of $126 million, up 79% from a year ago. He also said the company now has almost 400 customers with contracts valued at more than $1 million.
“Splunk’s cloud business continues to accelerate, now representing more than half of our software bookings in the quarter – a major milestone in our cloud journey,” Merritt said in a statement.
On a conference call with analysts, Merritt said the company was also seeing some benefits from the coronavirus pandemic, which has forced some customers to accelerate their move to cloud-based services.
“Many of the purchasing trends we saw in Q1 continued or accelerated in Q2,” he said. “Although some customers remain hesitant to commit to long-term contracts, especially for larger orders, many existing customers continue to expand their use of Splunk.”
Merritt also highlighted the “strong traction” of Splunk Cloud on Google Cloud following its limited-availability release on that platform earlier this year.
The big problem dogging Splunk right now is that it gets lower margins from its cloud subscription business compared to its older licences, Constellation Research Inc. analyst Holger Mueller told SiliconANGLE. Despite that, he said Splunk had a good quarter under difficult conditions, and that demand for its Data to Everything platform remains strong.
“Splunk’s platform needs to be developed as a subscription service and via the cloud, to provide not only the technical but also the commercial elasticity that enterprises need in these roller coaster times,” Mueller said. “The big question for investors is, how will Splunk return to profitability? That’s something management will have to address soon.”
Unfortunately for Splunk, it could be some time before it sees a reversal of its fortunes. For the next quarter, the company said it’s expecting revenue of between $600 million and $630 million, some way below Wall Street’s forecast of $642.4 million.
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