Shares of Splunk (NASDAQ: SPLK) fell 17.4% in May, according to data from S&P Global Market Intelligence, despite another better-than-expected quarterly report from the operational-intelligence platform company.
Continue Reading Below
In fact, after trading roughly flat for the first few weeks of the month, even as the broader market fell on global macroeconomic worries and trade concerns, virtually all of Splunk's drop last month occurred after its update hit the wires on May 23. In that update, the company confirmed its quarterly revenue had soared more than 36%, to roughly $425 million (above guidance for $395 million), translating to surprise adjusted net income of $3.2 million, or $0.02 per share (versus estimates for a loss of $0.14 per share).
What's more, Splunk increased its full-year revenue outlook by $50 million, to $2.25 billion.
As I wrote a few days later, many investors frowned over Splunk's decision to also significantly reduce its guidance for full-year operating cash flow by $100 million, for a new full-year target of $250 million. Splunk management explained during the subsequent call, however, that its lower cash-flow expectations primarily stemmed from the company's faster-than-expected shift to renewable bookings as it moves toward a cloud-based subscription model rather than favoring older lump-sum perpetual licenses.
To be clear, Splunk's cash-flow pressure today stems from the company's incredible momentum as recurring revenue continues to build. Over the longer term, its strength will eventually become more clear to our fickle market. I think patient investors would be wise to consider opening or adding to their positions before that happens.
10 stocks we like better than SplunkWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Splunk wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of March 1, 2019