Splunk Pares Loss After CEO Says Cloud Shift Drove View Miss

(Bloomberg) -- Splunk Inc. shares rallied back from a 15% loss in post-market trading after the company's chief executive offered reassurances that growth is intact despite revenue forecasts that trailed Wall Street estimates.

The data-software company forecast fiscal 2021 revenue of about $2.6 billion, which fell short of the average analyst estimate of $2.88 billion. First-quarter revenue is expected to be about $450 million, compared with an estimate of $523 million.

Chief Executive Officer Doug Merritt attributed the shortfall to the company's shift to cloud-based services, under which revenue recognition is delayed relative to term contracts. The stock was down 1% as of 5:32pm in New York.

“ARR continues to accelerate and we see cloud continue to accelerate,” he said in an interview.

The San Francisco-based company, whose software helps companies analyze data to detect things like network outages and security threats, has seen cloud-based revenue surge in recent years and has shifted customers to annual billing from multiyear. Cloud revenue accounted for 35% of Splunk's total revenue at the end of fiscal 2020, Merritt said.

That transition has caused confusion on Wall Street and contributed to a reduced free cash flow forecast in August that sent the stock tumbling. Splunk said Wednesday it's targeting annual recurring revenue of 40% on a compound annual growth rate basis.

Merritt has augmented his company's rapid growth with acquisitions. Splunk bought five companies last year, the biggest of which was the $1 billion acquisition of SignalFX.

Merritt said his focus remains executing on the completed deals.

“Integrating and delivering the value is our number one priority,” he said.

Revenue last quarter expanded 27% to $791 million. That exceeded the average Wall Street estimate of $782.2 million. Fourth-quarter adjusted earnings per share were 96 cents, matching the estimate.

To contact the reporter on this story: Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Jennifer Bissell-Linsk

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