Splunk (SPLK) Combines Solid Demand With Cost Containment Efforts To Blow Out Estimates Again
3:22 pm Thursday, December 01st, 2022
Despite experiencing a more cautious spending approach from its customers, Splunk (SPLK) still crushed 3Q23 top and bottom-line estimates and raised its FY23 outlook for revenue, Non-GAAP operating margin, and free cash flow. The data analytics and cybersecurity company, which is currently operating without a full-time CFO, drove its strong results through its cloud-based business transformation efforts and through robust margin expansion. On that note, SPLK’s cloud gross margin increased by a whopping eight percentage points from last year to 72% this quarter.
Heading into the earnings report, there was concern that macroeconomic uncertainties were pressuring demand and causing customers to slow their cloud migrations and expansions. Recall that last quarter, CEO Gary Steele disclosed that some customers were opting for shorter-term commitments as they tightened their IT budgets. Consequently, SPLK ratcheted its FY23 Cloud ARR guidance lower to approximately $1.8 bln from $2.0 bln.
While SPLK wasn’t completely spared from these challenges, as evidenced by its dollar-based net retention rate slipping a bit to 127% from 129% last quarter, the company fared much better than many had anticipated.
Overall, demand held up quite well in Q3, particularly from SPLK’s existing customers, which generated strong term license sales. Business conditions have softened across the cloud software landscape, but SPLK’s cybersecurity, observability, and data analysis applications are receiving prioritization in many companies’ IT budgets. Along with SPLK’s heightened focus on profitability, this favorable positioning could keep this streak of huge EPS beats going, which now stands at five consecutive quarters.
