NicoElNino
Summary
- Splunk Inc. focuses on improving efficiency and cost optimization, with management initiatives aiming to get the company back on track to approach the software “rule of 40”.
- Despite a revenue slowdown, SPLK’s cloud transition, FCF profile, and discounted P/S ratio make it an attractive long-term investment opportunity, particularly within the AI thematic trend.
- Splunk’s solutions demonstrate strong stickiness among its enterprise customer base, with a high customer renewal rate and longer contract duration over the past quarters.
- Given SPLK’s YTD return of 16%, significantly lower than the NASDAQ’s 37%, I view this as a potential buying opportunity for long-term investors.
Investment Thesis
During the 2023 Global Technology Conference, the management of Splunk Inc. (NASDAQ:SPLK) primarily focused on two important metrics: annual recurring revenue (ARR) and the FCF profile. I’m pleased to see that the company is prioritizing both its top and bottom lines. In the last earnings release, SPLK impressed investors by surpassing all metrics and raising its forward outlook for FY2024. As a leader in machine log analytics, the company has faced pressure due to its decelerating growth in recent years. The current stock price level is slightly below the pandemic low, which has resulted in a discounted valuation.
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