Big Data Big Profits
Declan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It's not often an IPO makes it onto my volume breaker scan, but one managed to meet my qualifying criteria of new highs on significantly heavier volume. The stock launched in April with a splash when it concluded its first day of trading up 66% on its IPO price. It was able to hold its gains for a few months before earnings brought with it a fresh surge in buyers. Following earnings the stock continued its ascent and has now reached a point of pressuring all-time highs, above which the sky is the limit.
The stock in question is Splunk (NASDAQ: SPLK) and its business is real-time operational intelligence software. The company markets its product as freeware, with a built-in (commercial) Enterprise license available. Clients simply install and start using. Its clients include a number of big players from the 3,700 customers using its service; including Salesforce, Cisco, Microsoft, and Bank of America. Although it's unclear how many of these customers are using the Enterprise version.
Splunk added 400 new customers in the second quarter. License revenue jumped 61% year-on-year to $30.2 million, resulting in a loss of -0.05 per share. Unfortunately, as an IPO there is limited financial history to reference. A loss of -0.07 was reported in the previous quarter, but if Splunk can grow its revenues in the manner it has it should be profitable (or close to) by this time next year.
Direct competitors include privately owned XPLG and Sumologic. Bigger names also have a finger in the pie, these include EMC, Oracle (NYSE: ORCL), IBM and SAP (NYSE: SAP). Splunk's offering puts emphasis on an UI accessible to CEO's, and not just IT specialists. Larger competitors often overlook UI in favor of development of backend bells-and-whistles, so Splunk has pitched its marketing accordingly. However, this doesn't mean Splunk has neglected the analytical component of its product. In its most recent report it announced the appointment of an Oracle executive as vice president of product and solutions management, a sign of its commitment to product development.
Oracle and SAP AG are probably the closest of Splunks' biggest name competitors. Oracle's Big Data Appliance was launched in January and falls under Oracle's Engineered Systems offerings. Software has become an ever increasing segment of Oracle's revenue; in the company's last annual report 87% of its revenue was from software and hardware sales. However, in the company's more recent quarter there was a 24% drop in hardware sales from a year ago.
Oracle's Big Data Appliance is a relative new offering, but comes in with all guns blazing. It uses software from heavyweight Cloudera and has positioned itself to challenge SAP's HANA system. It's competitively priced against its peers, but it's too early to say what impact it will have on revenue. However, it would appear Big Data is key segment for Oracle, not just from a software perspective but for its struggling hardware segment too.
SAP's HANA system has been in play longer than Oracles' and this advantage was clearly hurting Oracle. Since HANA went live it had racked up more than 500 customers in July and generated €85 million in license revenue for Q2 alone. SAP is on track to double HANA revenue by Q4 of the current fiscal year. The full-year revenue projection for HANA sits at €320 million which translates to 2% of SAP's revenues for the last fiscal year; a significant slice for what is in effect a relatively new product.
The "Big Data" market is estimated to grow to $30 billion in 2015, which is well above the current market estimate of $5 billion. Even so, SAP's experience shows just how valuable the segment is in contributing to current earnings, and also Oracles' and Splunk's too.
Splunk has the edge in been exclusively focused on Big Data; it has a substantial client base it can use to leverage for new clients. Oracle and SAP AG have the brand name and the clout, but any success from their Big Data offerings will be diluted by its other business sectors. The other advantage Splunk holds is its potential as a buyout candidate, likely by one of Oracle or SAP AG. Splunk has a rich client base which no doubt is attractive to either Oracle, SAP AG or another looking to gain an advantage in the market. As a final note, should the above growth projections prove accurate there will be opportunities for other players to either expand or enter the market and these should be watched for too.
fallond has no positions in the stocks mentioned above. The Motley Fool owns shares of Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.