Splunk, in White’s view, is “an emerging software platform vendor focused on turning machine data into real-time operational intelligence,” which he thinks is “an exciting play on the trend toward Big Data.”
That “operational intelligence market” may be worth $32 billion this year, writes White, citing market data from research firm IDC.
** weekly chart Dec 2012 **
below: update 1 year later, Dec 2013
The nine-year-old company may be “the next big thing in IT,” writes White, according to his chats with some customers and resellers of its software:
Described by some as the “Google” for log files, we believe Splunk has the opportunity to leverage its proprietary machine data engine technology to be a disruptive force in the IT world, competing with a host of existing solutions across areas such as business intelligence, relational data base, security and other technologies […] Splunk was founded in 2003 by Michael Baum, Rob Das and Erik Swan. The name Splunk was derived from “spelunking” or exploring caves and analogous to searching through machine data with Splunk’s software […] Essentially, Splunk’s proprietary machine data engine technology is at the core of the platform, taking the machine data and turning it into real-time, operational insights that range from customer buying patterns, potential security risks, website service levels, worker productivity, network utilization and a whole host of other instances. Splunk can better support unstructured data (IDC estimates that ~90% of data is unstructured) better than traditional relational database, enterprise applications, IT management software and security software that are focused on supporting pre-defined data structures. In our view, the biggest competitive threat to Splunk will come in the form of a start-up. […] During our research process, we found that customers begin using Splunk for a single use case and are quickly finding completely, new and different uses for the product that they had never imagined. Use cases for Splunk fall into (but are not limited to) four major buckets that include the following: (1) application management; (2) security & compliance; (3) Infrastructure & IT operations management; and (4) business & web analytics.
White also likes Splunk’s approach to how it prices, with the company letting customers use its “Splunk Enteprise” product to index half a gigabyte of data per day for 60 days for free, and then being asked to pay based on amount of data indexed. He thinks that “allows Splunk’s sales to more closely track the high growth rate of data. The average ASP for Splunk is estimated at approximately $35,000.”
White has Splunk making $193.9 million in revenue this year and losing 3 cents per share, and he offers the following observations about near-term spend and longer-term profit:
During 3QFY13, Splunk was operating at an annual revenue run rate of $208 million and the Company’s medium-term revenue target is $1 billion. In terms of profits, we believe Splunk will continue to run the Company near break-even levels in an effort to invest profits back into the business in order to capitalize on the big growth opportunities that on the horizon. That said, the Company’s long-term financial model includes 85-95% gross margin and a 25-30% operating margin profile.
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