Big Data Takes Off with Splunk
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Is the era of Big Data upon us? The strong debut of the Splunk (NASDAQ: SPLK) IPO last Thursday has investors scrambling to find its successor. Splunk debuted up 108% from its listing price of $17, adjusted from an earlier $8 to $10 range pricing, making it the best initial performance since LinkedIn debuted at 109% last spring.
What is Big Data? Used properly, the term refers to software that can handle multiple data formats in quantities over 100 terabytes with real-time monitoring. Splunk is a well-rounded, (relatively) easy-to-use product that its CEO has nicknamed the “Google of Data.” The company already lists a number of Fortune 500 companies as clients. It’s also the first IPO for a standalone company providing these Big Data solutions.
There isn’t really a direct competitor for Splunk in the market. It will battle beside old guard data companies like Teradata (NYSE: TDC), which was named a leader of data warehousing by Gartner last year and earned FY 2011 revenues of $2.362 billion. Then there are subsidiaries from the big name tech companies. IBM (NYSE: IBM) has recently expanded its Big Data offerings with the acquisitions of Varicent Software, provider of sales and compensation analytic software, and Vivisimo, provider of search and navigation software.
Splunk will be able to hold its own against these companies if it continues to offer unique advantages to its corporate clients.
A real-life example of Splunk in action can be found in the struggles that Macy’s (NYSE: M) had in maintaining the company website during holiday rushes. Macy’s online segment is big business, historically earning over $1 billion per year and predicted to hit the $2 billion mark in 2012. Prior to implementing Splunk in 2008, the website had serious downtime issues for six years running. There’s been zero downtime since Splunk. Macy’s architecture analyst Camille Ball said, “The money we’ve spent on licensing Splunk, we’ve captured back over and over again. We’ll spend two or three minutes using Splunk, versus five or six hours before.”
Splunk offers companies a chance to try the service for free in order to determine whether it will be the right fit. The “try before you buy” model is becoming increasingly prevalent in enterprise software, recently appearing in the new AWS Marketplace from Amazon. This setup takes the monetary risk off the shoulders of the enterprise and makes it more likely that companies that sign up with Splunk will stay with the service.
Perhaps the strongest selling point of Splunk is its ability to adapt to consumer demands. The newest version of Splunk (Splunk 4.3) launched in January with a spat of new features. The new UI isn’t Flash reliant, which paved the way for a mobile version that works on the Flash-hating iPhones and iPads. Performance speeds were increased and the user dashboard process was simplified. Splunk worked with a group of its corporate clients, including discount travel site Expedia, to determine what changes needed to be made during the beta testing phase. Currently in beta testing is Splunk Storm, a cloud solution to data management.
Research firm IDC reported that the market for commercial Big Data products was $3.2 billion in 2010 and predicts that it will maintain 40% per year increases on through 2015, when it should reach $16.9 million. That growth could be impacted by the lack of qualified workers and hesitancy for enterprises to move on from the old methods of operation.
IDC’s Susan Feldman recently spoke at a tech roundtable and expressed concerns that there aren’t enough workers out there who have mastered the Big Data technologies. Feldman specifically mentioned Hadoop, an open source software framework from Apache that underlies data products from the likes of IBM and Oracle. Splunk can utilize Hadoop, but doesn’t natively, but even “easy” solutions such as Splunk require high levels of specialized knowledge.
The worker bees aren’t the only ones struggling with this emerging sector. LogLogic published a survey last month with 200 security officers (IT decision makers) as the respondents. Twenty-seven percent indicated a lack of understanding about what Big Data actually means. Half cited data management concerns and 59% confessed that the home company’s current data policies aren’t streamlined into one central unit.
Invest in Data?
Jumping into the Big Data pond requires predictive skills rather than a look at the past fundamentals. Splunk has had a bit of a mixed bag with revenues / losses of $35.0 million / $7.5 million (2010), $66.2 million / $3.8 million (2011), and $121.0 million / $11.0 million (2012). But the future potential of the company is what should steer investment decisions.
Splunk successors are going to flood the market, looking for their own piece of the IPO action. The best ways to evaluate these companies is to take a glance at the financials but a deep, critical look turned towards the products offered and the potential for evolution and expansion. Make sure that the company, like Splunk, offers something that no other established company can provide.
LynBetz has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.