Still bullish on Splunk, Piper Sandler analyst Rob Owens believes there is a longer-term opportunity for shares on the selloff
Shares of Splunk (SPLK) are under pressure after the data-analytics company reported a wider than expected third quarter loss. Following the company's quarterly report, several Wall Street analysts downgraded the stock to Neutral-equivalent ratings, with BTIG analyst Gray Powell calling the results "disappointing" and his peer at Stifel saying that the magnitude of the company's miss is "especially surprising."
RESULTS: After market close Wednesday, Splunk reported third quarter losses per share of ($1.26) and revenue $559M, both below consensus of 9c and $613.03M, respectively. The company also said it sees fourth quarter revenue between $650M-$700M, with consensus at $777.73M, and fourth quarter adjusted operating margin of (4%)-3%.
"Volatility in the near-term is driving significant variability in our long-term targets. As a result, we are withdrawing our fiscal year 2023 ARR and OCF guidance until we close out this year and have a greater understanding of the macro factors affecting the operating environment," Splunk added.
'DISAPPOINTING' QUARTER: BTIG analyst Gray Powell downgraded Splunk to Neutral from Buy, saying the company's third quarter results were "disappointing" and its guidance for the fourth quarter was below expectations as the management cited delays in large deal closures at the end of the quarter. Powell added that Splunk's pulled long-term ARR targets calling for 40% average growth through 2024 was also a "big disappointment" following its October analyst day, where the management made those "bullish" medium term projections.
DA Davidson analyst Andrew Nowinski also downgraded Splunk to Neutral from Buy with a price target of $177, down from $250, after its worse than expected third quarter results. The analyst noted that the company missed revenue guidance for the third consecutive quarter, and while his checks suggest that demand has improved, the management attributed the miss to seven large deals that slipped out of the third quarter. Nowinski further stated that the lack of visibility implied by Splunk's pulled medium term guidance warrants a move to the sidelines on Splunk shares.
Voicing a similar opinion, Mizuho analyst Gregg Moskowitz downgraded Splunk to Neutral from Buy with a price target of $180, down from $235. The company posted a "very disappointing" with lower than expected bookings and annual recurring revenue as several very large deals slipped, Moskowitz told investors in a research note. The company also withdrew fiscal 2023 guidance, "which had been a major support beam for the stock," the analyst added. Moskowitz is concerned that the results could point to deeper execution issues that could take some time to resolve.
Meanwhile, Stifel analyst Brad Reback cut Splunk's rating to Hold from Buy with a price target of $160, down from $227, following the company's "very disappointing" third quarter report. The magnitude of the company's miss, and its long-term implications, is "especially surprising on the heels of a confident analyst day management held 11 days before quarter end," Reback contended. While he continues to believe there is a large opportunity in front of the company, it is clear that near-term visibility is quite low.
LONG-TERM OPPORTUNITY: While Piper Sandler analyst Rob Owens lowered the firm's price target on Splunk to $200 from $250, the analyst kept an Overweight rating on the shares. Owens acknowledged that he is "clearly disappointed," but believes there is a longer-term opportunity for Splunk shares on Thursday's selloff.
Also keeping an Overweight rating on the shares, Barclays analyst Raimo Lenschow lowered his price target on Splunk to $220 from $245. The analyst believes Splunk made a strategic mistake when it reaffirmed annual recurring revenue guidance at the start of the year. However, long-term investors should use this opportunity to accumulate a "great asset that should come out of the pandemic strongly," Lenschow contended.
Meanwhile, JMP Securities analyst Erik Suppiger lowered the firm's price target on Splunk to $220 from $240, keeping an Outperform rating on the shares. The analyst cited the company's third quarter earnings shortfall, below-consensus fourth quarter revenue guidance, and withdrawn mid-term guidance, which suggests that Splunk management is concerned that the uncertain economy may persist for an extended period. Nonetheless, Suppiger told investors that he remains positive on the stock longer term and believes that shares are "undervalued."
Morgan Stanley analyst Keith Weiss also cut his price target on Splunk to $213 from $270 after the company's third quarter results came in materially below management guidance, which was "a significant negative surprise" after Splunk hosted what he views as "an upbeat analyst day" in late October. While the withdrawal of the company's medium-term outlook after just one quarter of slipped deals likely further shakes investor confidence, he thinks the withdrawal is probably the right move as a means to resetting the bar going forward. Weiss keeps an Overweight rating on the shares as he remains optimistic about the market opportunity ahead of Splunk and the competitiveness of its broadening solution portfolio.
Baird, Citi, Raymond James, BMO Capital and Oppenheimer also lowered their price targets on Splunk.
PRICE ACTION: In morning trading, shares of Splunk have dropped about 22% to $160.65.
Keywords: earnings, Wall Street research, analyst, data-analytics