Is Splunk Inc (SPLK) Moving in the Wrong Direction?

Splunk Inc (SPLK) options in focus as shares move higher; call volume pops in shipping stocksOn Thursday, Splunk Inc (NASDAQ:SPLK) will release its latest quarterly results. With the company’s stock having rebounded sharply from a post-IPO slump last year, investors have to wonder when Splunk will finally become profitable.

Splunk Inc (NASDAQ:SPLK)’s potential comes from its presence in the growing cloud-analytics space. With companies gathering incredible amounts of data, they need help making sense of it and using it to optimize their business efficiency, and Splunk’s services give users the opportunity to get more from the information they gather. Let’s take an early look at what’s been happening with Splunk Inc (NASDAQ:SPLK) over the past quarter and what we’re likely to see in its report.

Stats on Splunk

Analyst EPS Estimate ($0.06)
Year-Ago EPS ($0.04)
Revenue Estimate $54.03 million
Change From Year-Ago Revenue 45%
Earnings Beats in Past 4 Quarters 4

Source: Yahoo! Finance.

Will Splunk start earning its keep this quarter?
One sign that Splunk Inc (NASDAQ:SPLK)’s earnings might be going in the wrong direction came from analysts in recent months, who doubled their loss estimates for the April quarter and reduced their full-year consensus to break-even from a modest profit. But the stock has soared 35% since late February on optimism that the company is maintaining its strong revenue growth.

Splunk is definitely in the right place at the right time, with data-center growth having become a constant of the tech industry. Many of the biggest players in technology have turned to the big data movement to try to find higher-margin business to replace flagging results in other segments, and the success of data-mining business models has established the value of finding the right tools to analyze and utilize analytical information.

But one big element pushing Splunk Inc (NASDAQ:SPLK)’s stock higher was the buyout offer that rival BMC Software, Inc. (NASDAQ:BMC) received earlier this month. A group of private investors that includes Bain Capital made the $6.9 billion offer for BMC, and with activist investor Elliott Management having blessed the deal, it’s likely to go through. The strategic move establishes the value of companies in the data-analytics space, especially given that BMC Software, Inc. (NASDAQ:BMC) had already lost its competitive edge against Splunk and other rivals.

In addition, the IPO of Tableau Software, Inc. (NYSE:DATA) has returned attention to the sector. With Tableau having gained 64% on its first day of trading, investors clearly have strong expectations for the company, which specializes in data visualization. In particular, Tableau Software, Inc. (NYSE:DATA) has gross margins that put even Splunk’s near-90% figures to shame, and if Tableau Software, Inc. (NYSE:DATA) can retain that advantage, it could pose a long-term threat to Splunk Inc (NASDAQ:SPLK).

In Splunk’s quarterly report, pay special attention to figures that the company gives about major new customers and retention rates among current clients. With a big increase in competition, it’s critical for Splunk to hold onto the business it currently has while aggressively moving forward with plans to acquire new business. Moreover, the stronger Splunk can make itself, the more attractive it might look to a potential buyer of the company if the consolidation trend continues.

The article Is Splunk Moving in the Wrong Direction? originally appeared on and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of BMC Software.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.