Why Shares of Splunk Fell on Friday

What happened

Shares of Splunk Inc. (NASDAQ: SPLK) fell 7.3% on Friday despite the company reporting strong fiscal first-quarter earnings, as analysts focused instead on the software company's weak cash flow guidance and slowing customer gains.

So what

After markets closed Thursday night, Splunk, a data-analytics software vendor, reported adjusted fiscal first-quarter earnings of $0.02 per share on revenue of $425 million, easily topping analyst consensus for a $0.14 per-share loss on $395 million in sales. The company also raised full fiscal-year revenue guidance to $2.25 billion from $2.2 billion, implying some upside over the consensus $2.22 billion estimate.

The company exceeded most metrics for the quarter, but a number of analysts took a glass-half-empty view of the results. Post earnings, BMO Capital analyst Keith Bachman lowered his price target to $157 from $162 due to "uncertainty" around Splunk's growth rates and free cash flow penetration, though he did say the valuation remains attractive.

Guggenheim analyst Imtiaz Koujalgi similarly lowered his price target to $115 from $125, saying operating cash flow could be a headwind for the entire year. And Piper Jaffray's Alex J. Zukin noted the company "meaningfully" cut its forecast for operating cash flow to $250 million from $350 million, and that management expressed disappointment regarding the number of new customers added in the quarter.

Now what

The quarter might not have been perfect, but as Bachman notes there is still a lot to like about the performance. Prior to the earnings release, shares of Splunk had been up 30% year to date and have more than doubled in the past three years.

The company is still moving in the right direction, but armed with an indication that Splunk's momentum might be slowing somewhat, investors on Friday apparently thought it best to book some gains.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Splunk. The Motley Fool has a disclosure policy.