by Ian Harvey
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Option Trade – - Splunk Inc. (NASDAQ:SPLK) Calls
Wednesday, March 27, 2019
** OPTION TRADE: Buy the SPLK JUN 21 2019 130.000 CALL at approximately $7.00. Place a pre-determined sell at $14.00.
Also include a protective stop loss of $2.80.
The data analytics software provider Splunk Inc. (NASDAQ:SPLK) delivers usable insights into digital systems -- everything from websites and apps to servers and mobile devices. The company has said that the amount of data production each year will be 44 times greater in 2020 than it was just a decade ago. With the amount of digital information booming, Splunk has been growing by leaps and bounds.
Splunk is a hybrid cloud-computing platform company that helps businesses collect and categorize their data so they can better understand how to use it. Think of it this way: Companies are generating so much data from their customers that they're having a hard time making sense of it all. And Splunk's AI-powered platform helps address that.
Splunk has used machine-learning data -- a type of AI -- to make sense of businesses’ big data for several years. The company's CEO said back in 2016:
"Digital transformation has changed the way organizations work. The big secret is that all of the change is underpinned by machine data. Machine learning enables organizations to get deeper insights from their machine data and ultimately increases the opportunity our customers can gain from digital transformation."
Splunk's double-digit growth last year was driven by businesses' continued interest in making use of the otherwise unusable and unwieldy data they generate, but Splunk did its fair share to make the most of the movement as well. Several acquisitions were made, most notably a couple of cybersecurity outfits to boost Splunk's presence in that fast-changing industry; new and updated product rollouts were also made for things like cloud computing and Internet of Things device tracking; and more than 2,000 apps from strategic partners were available on Splunkbase (an app store of sorts for companies) to extend the usefulness of the data analytics software for specific business needs.
Analysts are quite positive on Splunk with Credit Suisse Group lifting its price target from $130.00 to $160.00; and Wedbush lifting its price target from $146.00 to $159.00 in reports released on Friday, March 1.
To stay ahead of its competition, Splunk has frequently snatched up smaller companies , including machine-learning company SignalSense late in 2017 and VictorOps last year. So far, the company's moves have paid off: In the most recent quarter, its software sales were up 42% from the year-ago quarter, and total revenue jumped 35%.
Splunk's shares are up about 24% over the past 12 months -- with the most recent jump coming when the company's management raised its full-year revenue guidance.
Even as the company has grown -- revenues have doubled several times over the last five years to $1.8 billion last year -- the amount of red at the bottom of the operating statement has also grown. During the recently completed 2019 fiscal year (the 12 months ended Jan. 31, 2019), net losses were $275.6 million, up from $190.2 million the year prior even though sales went up 38% over that same stretch of time.
The reason for those losses, though, is intentionally elevated expenses to foster the most growth possible. Splunk notched big annual increases in spending last year, especially in research on new products and headcount to support sales.
Headed into a new fiscal year, management expects total revenues to increase to $2.20 billion, another 22% increase over last year. That's a slowdown from recent rates -- although Splunk has a history of underpromising and overdelivering -- but the company is beginning to ease off the throttle and grow the bottom line. Adjusted operating profit margin should come in at 14%, up from 12.7% last year.