By Davit Kirakosyan and Senad Karaahmetovic
Splunk (NASDAQ:SPLK) shares are trading over 5% lower in pre-open as the company missed its guidance expectations, despite reporting better-than-expected Q4 results.
Q4 EPS came in at $2.04, above the consensus estimate of $1.14. Revenue grew 39% year-over-year to $1.25 billion, beating the consensus estimate of $1.08B.
The company reported 790 customers with a total ARR greater than $1 million, which represents an increase of 115% year-over-year. Cloud ARR was $1.78B, up 33% year-over-year.
"Total ARR grew by 18% to $3.674 billion and annual free cash flow nearly quadrupled as the team continued its focus on driving results and improving operating efficiency," said Brian Roberts, CFO of Splunk.
For Q1/24, the company expects revenue in the range of $710-725M, missing the consensus estimate of $807M. Total ARR is expected to be approximately $3.7B.
For the full year, the company expects revenue in the range of $3.85-3.9B, compared to the consensus of $4.02B. Total ARR is expected to be in the range of $4.125-4.175B.
BofA analysts said the results indicate the company is emerging as a Rule of 40 (a software company's combined revenue growth rate and profit margin should equal or exceed 40%) company after the company guided to ARR (annual recurring revenue) FCF margin of 19% and ARR growth of 14%.
"Solid 17% ARR growth demonstrates the resilience of Splunk’s mission critical security category in the large enterprise," the analysts said.
Needham & Company analysts added:
"While Splunk missed the consensus forecast, we believe 13% yr-yr ARR growth guidance was roughly in line with buy-side expectations. Also, better-than-expected Free Cash Flow was the gem from Splunk's earnings. Shares trade ~23x our revised FY25 Free Cash Flow estimate - providing valuation support."