Nowadays, institutional investors far and wide are betting big on big data. The question is whether the general investing public has missed the boat or if there is still time to hop on board.
If big data piques your interest as an investor, Splunk (SPLK) should be on your radar. Splunk is in the perfect position to benefit from the global migration to the web. The company’s software platform empowers businesses to monitor and analyze big data for an improved understanding of websites, devices, digital systems and other information.
Splunk has been in business for 15 years, yet the company has only hit its stride in the past couple of years. Revenue has skyrocketed from $100 million when the company first became publicly traded to more than a billion dollars per year. Company executives are adamant Splunk’s annual revenue will hit $2 billion by 2020. Spunk will likely enjoy its first-ever adjusted operating profit toward the end of the year. The optimism surrounding this business has fueled its rapid stock market rise across the past half-dozen years. In fact, Splunk’s shares are up 25% in 2018 alone.
Let’s take a look at whether or not Splunk has hit its ceiling.
The amount of digital information created goes up year-after-year. Splunk is banking on a continued information expansion in the years and decades to come. The company’s services are centered on helping businesses make sense of all the data generated by websites, apps and other digital sources. The information avalanche generated by emerging and legacy systems is rarely analyzed in-depth. Splunk is here to fill the void by assisting organizations of all types transform unusable data into insightful information that enhances operations in all sorts of ways. In particular, Splunk helps businesses obtain valuable insights on current and prospective customers as well as combat electronic threats. The company’s machine data software, cybersecurity solutions and artificial intelligence are proving useful for businesses of all types.
Splunk scooped up a number of companies last year. The digital data pioneer acquired an array of complementary businesses to enhance its cybercrime-fighting capabilities. All in all, the company has 16,000 clients. Splunk executives are striving for 20,000 customers by 2020. If this benchmark is reached, Splunk will enjoy $2 billion in yearly revenue.
Splunk revenue is divided between two primary spaces: licenses and maintenance/services. Each segment is growing at a double digit pace. However, the licensing segment primarily made up of software as a service (SaaS) that creates revenue through a subscription model has emerged as particularly important. This income stream is reliable and has a lofty profit margin. Prospective investors should know Splunk’s revenue from software increased more than 40% on a year-over-year basis between 2017 and 2018.
With all this considered, it is clear that Splunk’s services have merit. However, the business is still in the red. Splunk has an operating loss every quarter due to its elevated operating expenses. Splunk executives insist the company will become profitable toward the end of the year.
When analyzed according to free cash flow, meaning cash resulting from the subtraction of capital expenditures from adjusted operations, Splunk has been quite successful. The company is generating that much more cash flow with each passing quarter. So don’t let Splunk’s quarterly losses scare you away.
If you are interested in a big data growth stock, Splunk belongs in your portfolio. Digital data is not only here to stay; it will prove globally ubiquitous across the decades to come. Add Splunk to your portfolio, check in on it every few months, hold it for years and you are nearly guaranteed to make a substantial profit.