Big data analytics company Splunk Inc. announced its largest-ever acquisition today as it delivered second-quarter financial results that beat Wall Street’s forecasts.

Splunk said it’s intending to buy the cloud application monitoring firm SignalFX Inc. for $1.05 billion. About 60% of that amount will be paid in cash, with the other 40% Splunk common stock, once the deal closes in the second half of 2020.

SignalFX will bring some important capabilities to Splunk. The company, which emerged from stealth mode in 2015, sells a mixed bag of real-time cloud monitoring tools, predictive analytics and other services that help enterprises to keep an eye on the health of their information technology systems.

Splunk said the acquisition will position it as a leader in two key emerging areas, observability and application performance monitoring, covering both the cloud and on-premises environments.

The company said the combination will give information technology departments and developers alike a data platform that allows them to monitor and observe data in real time. That, Splunk added, can help them cut costs, boost revenue and improve customer experience.

Splunk seems to think this is exactly what its customers will want. It cites a forecast from Gartner Inc. that says more than 75% of the world’s enterprises will be running containerized apps in production by 2022, up from less than 30% today.

It also points to a report from International Data Corp. that says the app performance monitoring software-as-a-service market will grow three times faster than related on-premises services in the next five years.

Analyst Charles King of Pund-IT Inc. said the acquisition would extend Splunk’s already significant position in IT operations management.

“Expanding its existing portfolio with SignalFX’s solutions for cloud infrastructure, microservices and applications will allow Splunk to provide operational insights into data and workloads wherever they reside,” King said. “That will be critically important for companies leveraging hybrid and multicloud infrastructures and modernizing their applications.”

SignalFX had raised $178.5 million in funding ahead of the acquisition. Most recently it closed on a $75 million Series E round of funding in June. Its backers include General Catalyst, Tiger Global Management, Andreessen Horowitz and CRV.

Steve Herrod, a general partner at General Catalyst who sat on the board of SignalFX, said in an interview today on SiliconANGLE’s mobile livestreaming studio theCUBE that the growing popularity of application monitoring tools was a simple matter of economics for many enterprises.

“The amount of eCommerce and customer interactions over the web has gone up,” Herrod said. “Anything that’s not performing well or has downtime will cost you a lot of money as a company. As applications get more complex, and become more relied upon for revenue, you have to have better tools to monitor them.”

Constellation Research Inc. analyst Holger Mueller said the insights CIOs and CTOs need regarding their IT landscape are rapidly evolving, both from the platform side with cloud, and from the application architecture side with microservices.

“Neither of these were a particular strength of Splunk, so buying SignalFX gives it new insight into these areas,” Mueller said. “With that, companies get more certainty that Splunk is the one to partner with in order to know what’s going on with their next-generation applications.”

SignalFX will become Splunk’s largest acquisition to date once it goes through, dwarfing its earlier $350 million purchase of security automation and orchestration company Phantom Cyber Inc.

The acquisition came in the wake of a solid second quarter for Splunk, which announced earnings before certain costs such as stock compensation of 30 cents per share on revenue of $517 million.

Wall Street had been expecting Splunk to report earnings of just 12 cents per share on revenue of $488.35 million.

Splunk also announced a third-quarter outlook that came in above expectations. It said it’s expecting sales of $600 million over the next three months, well above the analyst consensus of $590.52 million.

Photo: Splunk/Facebook