Earnings season might be drawing to a close, but some have yet to post the third quarter’s financials. This week, Splunk (SPLK) will step up to the earnings plate; the company will report on Wednesday (Dec 1, AMC), although following the data analytics specialist’s preliminary 3QFY22 results – announced earlier this month – investors know what’s roughly in store.
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Revenue is anticipated to come in at around $660 million with operating margin expected to show negative 14%. The company’s original forecast had revenue between $625-650 million and an operating margin in the region of negative 15% to negative 20%.
While the results are better than the company had anticipated, Monness’ Brian White notes that the preliminary revenue amounts to a sequential increase of 9% growth, far lower than the four-year average of 19% growth for previous October quarters and below the 14% growth displayed in 3QFY21.
While Splunk’s share price tanked by 18% following the preliminary results’ announcement, that was viewed as less to do with the quarter’s performance and more down to the company announcing the departure of CEO Doug Merritt, who until the appointment of a new chief will be replaced by the company’s Chair Graham Smith.
However, White thinks there was another “significant factor” which exacerbated the shares’ decline.
“In our view,” White said, “The 3Q:FY22 preliminary results were respectable enough relative to expectations that the stock should not have reacted so violently; however, we believe the random timing of this CEO switch without any forward financial guidance spooked investors and may foreshadow more turbulence ahead for the company.”
Accordingly, while White is looking forward to the company saying farewell to “another challenging year,” the analyst admits the “modus operandi around guidance moving forward remains unclear.”
“Splunk participates in a software category with strong secular trends,” the 5-star analyst summed up, “However, the company has struggled with a cloud transition and the rise of formidable, next-gen competitors.”
To this end, White stays on the sidelines with a Neutral (i.e., Hold) rating and no specific price target. (To watch White’s track record, click here)
The rest of the Street has a more upbeat take; while 5 other analysts remain on the fence, with 12 additional Buys, the stock boasts a Moderate Buy consensus rating. Moreover, the average price target remains a bullish one; at $188.38, the figure suggests shares will move 50% higher over the next 12 months. (See SPLK stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.