Splunk – Business description:
Splunk Inc. (SPLK) provides software platform services. Its software collects and indexes data, regardless of format or source, and enables users to search, correlate, analyze, monitor and report on this data; all in real time. Its software is designed to help users in various roles, e.g. information technology (IT) and business professionals, analyze machine data and achieve real-time visibility into their organization’s operations. The core of Splunk’s software is a machine data engine, which comprises collection, indexing, search and data management capabilities. This software can collect and index terabytes of information daily, irrespective of the format or source.
As of January 31, 2012, Splunk had approximately 3,700 customers. Its technology is being used primarily in the IoT (link) business. Splunk was founded in 2004 and is based in San Francisco, USA.
Investment case:
The IoT business case is not new, and one could even argue that the internet has always been about connecting people with something. From the very start, the internet has worked through a network, and transported data so that it could be used for any type of purpose. And the growth potential is incredible – in 2011 there were already over 12.5 billion devices on the web and more than 50 billion intermittent connections were available. Today, there are about 80 applications connecting to the web for the first time every second. In 3 years time, there will be about 150 applications connecting for the first time every second and in 6 years time, about 250 new applications or instruments will connect every second to the cloud.
The tremendous growth anticipated in the next 3 to 6 years will increasingly use connect and remote facilities to extract data in a coordinated and logical manner. Splunk is one of the key software companies focusing on IoT services; its applications and services help with collecting data, providing security, and data analytics though its software platform services.
Strengths and weaknesses analysis / Fundamental analysis:
Strengths:
- SPLK is the owner of key software employed in data analysis,
- SPLK’s technology contains important components such as collecting, indexing, search, and other core functions,
- SPLK’s technology is SDK and API compatible which offers a large external connection volume,
- SPLK offers its customers integrated lightweight applications,
- License growth is estimated to be as high as 28% y/y,
- The data analysis business has multiple years of growth ahead.
Weaknesses:
- Splunk is a typical high-tech start-up i.e. high expectations versus low valuation and limited revenues,
- Splunk’s business model is based on a single product,
- The client turnover rate is still too high,To keep pace with the competition, the company needs to reinvest more than its presently available FCF.
Company profile, investment opportunity and asset management integration:
| Metric | Rating |
| Operational risks: | Above average |
| Expected growth: | Well above average |
| Long term value creation: | Above average |
| Positive competitive advantage: | Above average |
| Management excellence: | Average |
| Financial strength: | Average |
| Investment orientation: | Group “Best-in-Class”: Technology, IoT |
Price ranges:
| Buy: | Only forcustomers |
| Sell | Only forcustomers |
| Stop-loss: | Only forcustomers |
| Fair-value: | Only forcustomers |