Splunk's [SPLK] share price has increased 34% year-to-date and is using machine learning to drive its next stage of growth. Big data has been called the “new oil” by The Economist, The New York Times and Wired, among others. But like all new high-growth industries, growing pains are inevitable, too. The harvesting of big data has raised privacy concerns and, although accounting rules don’t (yet) call for tech companies to specify their data as a separate asset on balance sheets, the market is forecast to grow 33% from last year to $56bn in revenue by 2020.
As terabytes upon terabytes accumulate in sectors outside of tech, companies such as Splunk are set to benefit from businesses looking to utilise the data they hold. Indeed, the San Francisco-based company builds software in a hybrid cloud-computing platform that helps businesses collect and categorise data to provide insights that can improve operations and boost security.
Splunk has been growing rapidly, increasing its market share to 13.7%, according to Gartner research, as well as generating positive cash flow, which reached $273m in fiscal 2019. Between fiscal 2014 and 2019, revenues grew at a compound annual rate of around 40% – from $300m to $1.8bn. However, the company has yet to turn a profit; net loss increased to $257,577 for fiscal 2019, adding to an accumulated deficit of $1.23bn.
Despite this, Splunk is confident it’s in a position to keep expanding at a double digit annual rate for the foreseeable future, pushing for 20,000 customers and $2bn in annual revenue by 2020.
| Market cap | $20.76bn |
| PEG Ratio (5 yr expected) | 2.29 |
| EPS (TTM) | -1.89 |
| Return on Equity (TTM) | -20.78% |
Splunk share price vitals, Yahoo finance, 22 May 2019
Utilising the power of machines
Splunk is beginning to expand its services beyond corporations to individual customers. It is also pushing heavily into cyber security and has acquired several complementary businesses to bolster its machine learning capabilities and abilities to fight cybercrime.
Rob Das, Erik Swan and Michael Baum originally set up the company in 2004 as a search en-gine for IT professionals. But over the years the business quickly grew into an analysis tool to harvest big data, raising $230m when it debuted on the Nasdaq in April 2012.
Splunk is said to have been named after ‘spelunking’, a term for, often unprepared and ill-equipped, cave exploration. Digging through tons of big data with no proper way to index or make sense of it was thought to have been a similarly mindless endeavour in the early days. But it will be much easier for investors to keep track of Splunk as it rides the big data boom over the course of the next few months and years.
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