Splunk (SPLK) Q3 Earnings Growth Expected: Expensive at 64.0x Fwd P/E?

in EARNINGS/INVESTING IDEAS by

Splunk Inc. (NASDAQGS:SPLK) is scheduled to report Q3 earnings results on November 21, 2019, at 1:30 PM PST. You can listen to the webcast here.

The company is expected to report earnings of $0.54/share on revenue of $600.9 million. The consensus earnings per share (EPS) of $0.54/share is based on a poll of 39 analysts and represents a growth of 42.1% over the same quarter last year when the company reported earnings of $0.38/share.

The revenue forecast of $600.9 million based on a poll of 36 analysts implies a year-over-year (YoY) growth of 24.9%. Last year the company reported $481 million in revenue for the quarter.

Expected to report EPS growth of $0.16/share for Q3, 2019
Metric Expected Prior Year YoY Change
Revenue $600.87 $480.98 24.9%
EPS $0.54 $0.38 42.1%

The company has managed to grow revenue rapidly (3-Year Revenue CAGR of a whopping 39.2%!) while maintaining gross margins above 80%. Nevertheless, investors fell after the last earnings call as management announced they expect negative operating cash flow of $300 million for the full fiscal year, a significant reduction from the previous expectation for positive cash flow of $250 million. Recently, the market has grown wary of technology companies burning cash as companies like Uber and WeWork has experienced significant downward revaluations, so analysts will be watching closely for new cash flow guidance.

Splunk Revenues Gross Margin-WatermarkedSource: Finbox

Earnings Call Trends

The company has a perfect record over the last 8 tracked quarters of exceeding earnings guidance. What are your expectations from Splunk for earnings this quarter? Let us know in the comments!

Analyst Expected vs. Reported EPS
Quarter Expected Reported Surprise Result
Q2, 2020 $0.12 $0.30 150.0% Beat
Q1, 2020 -$0.15 $0.02 NM Beat
Q4, 2019 $0.76 $0.93 22.4% Beat
Q3, 2019 $0.31 $0.38 22.6% Beat
Q2, 2019 $0.05 $0.08 60.0% Beat
Q1, 2019 -$0.09 -$0.07 NM Beat
Q4, 2018 $0.32 $0.37 15.6% Beat
Q3, 2018 $0.13 $0.17 30.8% Beat

In the following table, we summarize the company’s stock price movements after earnings releases. The “Price Day Prior” column shows the closing stock price on the day before the earnings report, and the “Price Next Day” column shows the stock price at the end of the trading day after the earnings report. After the last earnings report for the period ending July 31, 2019, the stock price reacted by falling by -6.6%.

Stock Price Performance After Earnings
Report Date Price Day Prior Price Next Day Change % Result
2019-08-21 $126.72 $118.41 -6.6% Decline
2019-05-23 $136.12 $119.30 -12.4% Decline
2019-02-28 $138.45 $134.65 -2.7% Decline
2018-11-29 $99.14 $111.73 12.7% Increase

Fundamentals And Technical Analysis

Splunk is currently trading at $126.02/share, down -0.6% for the day. The company is trading at approximately 87.7% of its 52-week high of $143.70/share. The company’s stock price is down -0.6% since the last earnings report and up 1.7% over the previous week. The company’s 14 Day Relative Price Index (RSI) of 53.23 suggests the company is trading in technically neutral territory. The RSI is considered overbought when above 70 and oversold when below 30.

The current share price implies a price-to-earnings (P/E) multiple of -61.2x and a forward P/E multiple of 64.0x. Splunk’s current share price also implies a price-to-book (P/B) multiple of 13.2x. The following table summarizes some other key fundamental ratios:

Data as of November 21, 2019
Metric Value
Last Fiscal Period FY2020.Q2
Period End Date July 31, 2019
Stock Price (Current) $126.02
P/E Ratio -61.2x
P/E Ratio (Fwd) 64.0x
PEG Ratio 2.1
Total Debt to Capital (%) 9.1%
Levered Free Cash Flow $50.765 million
Enterprise Value / EBITDA -90.4x

Source: Finbox

Company Profile: Splunk, Inc.

Splunk Inc. is a large-cap stock with a market capitalization of $19.572 billion and a total enterprise value of $18.902 billion. The company operates in the Information Technology sector and Software industry.

Splunk Inc. provides software solutions that enable organizations to gain real-time operational intelligence in the United States and internationally. Its products allow users to investigate, monitor, analyze, and act on data regardless of format or source. The company offers Splunk Enterprise, a machine data platform with collection, indexing, search, reporting, analysis, alerting, monitoring, and data management capabilities; Splunk Cloud; and Splunk Light, which offers log search and analysis for small IT environments.

Splunk also provides Splunk Enterprise Security that addresses security threats and information, and event management; Splunk IT Service Intelligence, which monitors health and key performance indicators of critical IT and business services; Splunk User Behavior Analytics that detects cyber-attacks and insider threats; Splunk Phantom that automates and orchestrates incident response workflows; Splunk Machine Learning Toolkit; Splunk App for AWS that collects and analyzes data from amazon web services data sources; Splunk DB Connect to get business and enterprise context; and Cisco Firepower App for Splunk.

Further, the company operates Splunkbase and Splunk Answers Websites, which provide an environment to share apps, collaborate on the use of its software, and provide community-based support and education, as well as offers application programming interfaces and software development kits.

Additionally, it offers maintenance and customer support, training, and consulting and implementation services. The company serves cloud and online services, education, financial services, government, healthcare/pharmaceuticals, industrials/manufacturing, media/entertainment, retail/e-commerce, technology, and telecommunications industries.

Splunk Inc. was incorporated in 2003 and is headquartered in San Francisco, California.

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