The News: Splunk announced Q1 2024 earnings on May 24, posting solid numbers across the board. To find out more, click here.
Splunk Announces Q1 2024 Earnings
Analyst Take: Splunk plays a vital role for CIOs and CISOs by offering a comprehensive data analytics and security platform. Splunk solutions enable these executives to make data-driven decisions, gain operational visibility, and enhance security intelligence within their organizations. As the macroeconomic environment is still challenging, being focused on “doing more with less” and protecting against cybersecurity threats, Splunk is well positioned to continue growing.
Q1 2024 earnings by the numbers:
- Total quarterly revenues were $752 million, bringing ARR to $3.725 billion, up 16% year-over-year
- GAAP operating expenses declined 2% year-over-year; non-GAAP operating Expenses declined 1% year-over-year
- Operating cash flow was $492 million, up 243% year-over-year
- Free cash flow (FCF) was $486 million, up 253% year-over-year
- 810 customers with total ARR greater than $1 million, an increase of 120 customers year-over-year
Splunk had a solid start to its fiscal year, with a focus on driving durable growth, profitability, and FCF. The company exceeded guidance in its Q1 results, achieving a 16% year-over-year growth in ARR to $3.725 billion and an 11% increase in total revenue to $752 million. Splunk also managed to control expenses and increase FCF by 253% compared to the previous year. This progress led the company to increase its annual FCF outlook.
ARR and FCF are key indicators of the health of any business, and we believe that Splunk should be pleased with its accomplishments in the quarter. Despite some challenges such as delayed cloud migrations and increased deal scrutiny, the company surpassed its growth target by focusing on delivering value and a strong return on investment to its customers. Splunk ended the quarter with 810 customers with $1 million or more in ARR, a significant increase from the previous year.
Looking ahead, Splunk rightly remains confident in its ability to continue driving topline growth, improving profitability, and generating FCF. According to the earnings call, the company believes they are well-positioned to sustain its momentum and success in the coming year and beyond and we agree.
Security
Splunk reported a significant increase in cybersecurity deals during the first quarter, with a focus on enabling organizations to stay ahead of emerging cyber threats. The company expanded its footprint within a global IT services and consulting company with an 8-figure deal for the extended use of its core platform, coupled with the addition of Splunk Enterprise Security. This deal underscores both the power of Splunk’s continued partnership with this organization and the company’s relationships with CSOs. Following the CSO’s directive for more stringent security measures, Splunk displaced a legacy SIM system and will address several use cases, including safeguarding personally identifiable information (PII) for hundreds of thousands of employees worldwide. The company will need to continue to win large deals like this to continue to hit growth targets but we believe Splunk’s best-in-class offerings are in perfect alignment with the customer’s digital transformation efforts, and we are observing that spending on security projects is resilient to wider the macroeconomic market headwinds.
Observability
On the observability front, the company highlighted during the earnings call further momentum during the quarter as it continued the strategy of bringing the value of its observability offerings to existing customers. In Q1, the company secured a multimillion-dollar deal with a leading financial information services provider. This company has grown from an on-premises account to a multimillion-dollar cloud customer. This customer’s need for greater resilience across their digital systems resulted in a multimillion-dollar observability deal during the first quarter for Splunk. This organization has made several acquisitions in recent years and plans to consolidate more than 20 costly observability tools that it had amassed down to only Splunk. A key reason for this win according to the company was the ability to demonstrate technical differentiation based on Splunk’s commitment to OpenTelemetry–a set of standards that allows customers and third parties to build products that integrate seamlessly with Splunk’s platform–as well as Splunk’s ability to manage complexity across this organization’s multiple business units.
AI
Splunk is leaning into AI and sees AI as an opportunity to enhance its products and improve user experience (UX) without requiring extensive technical knowledge. By leveraging AI, Splunk aims to simplify complex analytics and enable users to query data in plain English, lowering barriers to entry for practitioners. Splunk’s flexible and scalable data architecture provides a rich dataset that is essential for effective AI applications. The company believes that AI can bring value by improving security and observability outcomes and assisting in threat detection, investigation, and response. Rather than replacing human decision-making, Splunk sees AI as an accelerator that can help address the talent shortage in cybersecurity by making understaffed teams more efficient. Looking forward, Splunk envisions AI-driven automation, anomaly detection, and risk assessment playing a significant role in driving growth and enhancing user outcomes in both core and premium products, particularly in security operations centers (SOCs).
Guidance for the Future
Splunk presented a positive outlook for the July quarter, projecting ARR of $3.825 billion and total revenue between $880 million and $895 million. This forecast surpasses the Street consensus of $868 million. The company anticipates a non-GAAP operating margin ranging from 10% to 12%. However, there is an expected loss of $15 million in FCF for the July quarter, which is attributed to seasonal factors as orders tend to be weaker in the April quarter. Despite the temporary dip in FCF, Splunk remains optimistic about its performance.
We are encouraged by Splunk’s recent trajectory and expect the company to continue to make significant updates to core offerings and expanded partnerships at the forthcoming .Conf event in mid-July which will provide a basis for continued growth and adoption.
Splunk Fiscal Q1 Key Takeaways
Splunk’s Q1 growth reflects the company’s resilience in the face of rapid data growth and escalating cybersecurity threats. The strong growth in ARR is an encouraging sign of the company’s underlying strength and, combined with significant customer growth, indicates that Splunk is gaining traction and making strides in the competitive security and observability market. These positive trends demonstrate that Splunk is capturing mindshare and making progress in establishing its positioning in the industry.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other insights from The Futurum Group:
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Author Information
Steven is Vice President and Practice Leader at The Futurum Group, responsible for the Hybrid Cloud, Infrastructure and Operations Practice. Operating at the crossroads of technology and disruption, Steven engages with the world’s largest technology brands exploring new operating models and how they drive innovation and competitive edge for the enterprise.
With experience in Open Source, Hybrid Cloud, Mission Critical Infrastructure, Cryptocurrencies, Blockchain, and FinTech innovation, Steven makes the connections between the C-Suite executives, end users, and tech practitioners that are required for companies to drive maximum advantage from their technology deployments.
Steven is an alumnus of industry titans such as HPE and IBM and has led multi-hundred-million-dollar global sales teams Steven was a founding board member, former Chairperson, and now Board Advisor for the Open Mainframe Project, a Linux Foundation Project promoting Open Source on the mainframe.
As a Birmingham, UK native, his speaking engagements take him around the world each year enabling him to share his insights on the role of technology and how it can transform our lives going forward.
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