Splunk Inc. (NASDAQ:SPLK) sentiments in the market took a hit after the company reported disappointing third-quarter results and guidance that fell short of Wall Street estimates. The data analytics firm is undergoing a cloud transition to software-as-a-service, with its woes exacerbated by the fact that it faces increased competition in the burgeoning segment.
Cloud Transition
Faced with uncertain market conditions, CEO Doug Merritt insists Splunk is one of the fastest-growing companies in the enterprise software segment. According to the executive, the company crossed an important milestone during the quarter at the back of continued demand for data-driven insights across a diversified global customer base.
Cloud momentum also continued in the third quarter as cash flow exceeded the target, with the company ending with cloud ARR up 71%. Splunk is in the process of changing the way it delivers its analytics software. Instead of delivering on on-premise installations, the company is looking to deliver via the cloud.
The shift is poised to lead to a subscription-based revenue model away from term licenses. As has always been the case, the shift to subscriptions always tends to hurt software companies' revenue early in the transition. This might as well explain why the company’s revenues and earnings fell short of estimates in the third quarter.
Disappointing Earnings
The data analytics firm reported a wider than expected net loss of $1.26 a share from earnings of 38 cents a share, reported a year earlier. Revenues were also down 11% to $559 million. However, cloud revenue was up 80% year over year to $145 million. Recurring revenue has also exceeded $2 billion.
The beating in the market came on the San-Francisco-based company providing fourth-quarter guidance that fell short of estimates. The software company expects fourth-quarter revenue at $650 million to $700 million against Wall Street's $777 million.
In November, Splunk inked a deal to acquire network performance monitoring specialist Flowmill. The cloud network observability company should help Splunk accelerate its vision in delivering cloud computing applications.