Splunk Inc. reported a bigger-than-expected loss in its fiscal first-quarter financial results today that, coupled with a revenue outlook that was below consensus, sent the big-data company’s stock down more than 3% in after-hours trading.

The company reported a loss of 91 cents per share on revenue of $502 million, up 16% from a year earlier and higher than Wall Street’s forecast of $491 million in sales. However, analysts were hoping for a much lower loss of 70 cents per share.

Even so, Splunk Chief Executive Doug Merritt (pictured) insisted there were lots of positives to take from the quarter.

“Our first-quarter success was defined by customers accelerating their move to the cloud,” he said. “Data became an essential service in the past year as the pandemic solidified the urgent importance of digital transformation.”

Splunk sells tools that are used by enterprises to monitor, search, analyze and visualize machine-generated data in real time. Essentially, it provides easy access to enterprise’s operational data and delivers insights that can aid in business decision-making.

The company has been steadily pushing its customers to cloud-based versions of its software. That has seen its revenue model change from one that’s based on perpetual licenses to cloud subscriptions, which provide a more predictable income stream. Today’s results show that the company is making good progress in that transition.

Splunk said its cloud-based annual recurring revenue jumped 83% from a year ago, to $877 million, for example. Cloud revenue itself rose 73%, to $194 million, accounting for a good chunk of its overall sales. Total annual recurring revenue rose 39%, to $2.47 billion.

The company also said it has 203 customers with cloud revenue clocking in at more than $1 million a year, up 99% from a year ago. In total, it now has 537 customers with annualized revenue of more than $1 million, up 46%.

Merritt told Barron’s in an interview that from a technology point of view, the company has more or less completed its transition. All of its software is now available in the cloud, on a subscription basis, he said. However, he said the company still has work to do on the financial side of the transition.

Analyst Holger Mueller of Constellation Research Inc. said that although Splunk’s transformation is moving along, it’s the execution that’s proving to be more challenging.

“Cloud revenue is growing nicely but it comes at a different cost than the traditional perpetual licenses do,” the analyst explained. “That puts pressure on profitability. And while it is good to see more spend on R&D, the company doubled its general and administrative costs, and that can be harder to explain to investors.”

Investors will at least be encouraged to know that help is on hand in regards Splunk’s business transition. Last month Splunk announced a key executive hire, with former Amazon Web Services Inc. executive Teresa Carlson joining the company in a newly created role of president and chief growth officer.

Carlson, it seems, was hired to help the company get over the finish line on its transition efforts. She has been tasked with working closely with its sales, customer success and marketing teams to align and drive its business transformations across go-to-market business segments, the company said. She will report directly to Merritt.

Splunk kept itself busy in other ways too. On the product front, the company launched a new Observability Cloud offering last month that helps developers to detect problems with applications before they affect users, so they can quickly fix them.

The company also made what it said is an important acquisition in cloud-native security startup TruSTAR Technology Inc. It said it plans to use the startup’s technology to advance its ability to offer comprehensive security solutions in the cloud, helping customers to detect and respond to cyberthreats more easily.

Looking to the next quarter, Splunk said it’s eyeing revenue in range of $550 million to $570 million. The midpoint of that range was just below Wall Street’s forecast of $561.4 million in revenue.

Regarding the company’s continued losses, Merritt said the situation won’t last for much longer. He insisted that the company will become cash-flow positive later this year, and added that it will be even more positive by next year. This quarter’s larger-than-expected loss was the result of investments in the growth of the company and also some accounting issues relating to its business model transition, Merritt said.

Photo: SiliconANGLE

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