This provider required visibility and insight across several cloud-native micro services they use to provide secure and accessible fintech. We also went head-to-head with a niche absorbability competitor and won a significant deal in Q4 to help a mobile financial services provider in Asia Pacific, modernize their applications. They want to extend their reach into a broader set of applications. We see it as significant, both in our installed base where customers that have been loyal Splunk core customers. We believe observability is a massive growth opportunity for Splunk, and we're making investments to broaden and strengthen our portfolio of enterprise-grade observability solutions that provide monitoring across complex environments. From its Q4-FY23 earnings call: Emphasis mine. Splunk had a number of marquee observability wins in Q4. Splunk's $ Net Retention Rate of 127% stayed high because of customers adding additional security use cases or adopting broader IT and observability services. Instead, it plans to leverage its vast arsenal of services and large roster of clients to keep adding use cases for its customers. These are the key strategic initiatives planned by Splunk, which should drive revenue and earnings growth.Īdding Use Cases and Upselling: Given the market size, its scalability and its leadership position, clearly Splunk doesn't want to stay within a few narrow categories of security. With less than $4Bn in revenues there is a long runway ahead for Splunk. Splunk in its Q4-FY23 presentation forecasted a TAM of $100Bn based on its own estimates and Gartner and IDC Research. Datadog is about 50% of Splunk's size with its main focus on observability and monitoring. Cloud margins have improved significantly with more revenues from 54% to 66% and as a result, overall margins too improved from 75% to 78% in line with Datadog's, which has the best margins in the industry. Splunk expects Cloud revenues to increase to 50% of total revenues by 2H of FY24. Having relationships with key IT decision makers through a cloud based SaaS contract, instead of a license enables Splunk to sell more of its services and increase revenues without the commensurate customer acquisition costs.Īs we can see from the table above, Cloud revenues have tripled from $554Mn to $1.5Bn in FY23. Splunk Revenue Segments (Seeking Alpha, Splunk, Fountainhead)Įmbedded Strategy: Splunk changed its strategy from selling licenses to focus more on multi year cloud SaaS contracts to cement longer term relationships and increase upselling opportunities. Let's take a look at its business and some of the strategic initiatives it is taking to shore up growth, profitability and fending competition from Datadog ( DDOG) to see if it's worth buying now or on declines.ĭata by YCharts Splunk's Revenue Segments: Focusing on the Cloud Now, its valuation is at a more reasonable 4X sales at $93 per share. Splunk used to sport a P/S multiple above 13 at one time with a sky high stock price of over $225. Splunk not surprisingly on its part, too, forecasted only 9% growth for 2023 and at a relatively sedate 15% growth for the next 5 years. However, these catalysts are in the rearview mirror now and according to an excellent article on Seeking Alpha, most Datacenter hyperscalers and Cloud service providers have warned of declining growth and demand. Massive needs for security and event monitoring, growth from Cloud Service Providers, Hyperscalers and Work From Home because of Covid-19 greatly boosted demand. Splunk had a brilliant decade growing revenues at 32% each year from a fledgling $302Mn in FY2014 to the $3.6Bn security behemoth it has become today. The laundry list of services is also vital for adding new logos as Splunk needs to expand to negotiate a much tougher selling environment in 2023. This allows for adoption of new use cases for upselling to embedded customers, a key characteristic of valuable SaaS companies. As we can see from the slide, they have a wide arsenal of services beyond SIEM. The key competitive advantages that stand out for Splunk are its scale and size and its wide range of productions and solutions. Often the SIEM segment is also categorized as APM (Application Performance Monitoring) with both having much of the same functions of security, observability and monitoring.
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