Splunk (SPLK) To Report Q2 Earnings: Factors Setting The Tone

Splunk (NASDAQ:SPLK) is set to report second-quarter fiscal 2020 results on Aug 21.

The company’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average positive surprise being 54.6%.

In the last reported quarter, Splunk reported earnings of 2 cents per share. The Zacks Consensus Estimate was pegged at a loss of 15 cents.

Moreover, revenues of $425 million increased 36% year over year and comfortably surpassed the consensus mark of $396 million.

For the second quarter, Splunk expects revenues of roughly $485 million.

The Zacks Consensus Estimate for second-quarter revenues is pegged at $486.7 million, indicating growth of 25.3% from the figure reported in the year-ago quarter.

Further, the consensus mark for earnings is pegged at 12 cents, unchanged over the past 30 days, indicating 50% growth from the figure reported in the year-ago quarter.

Splunk Inc. Price and EPS Surprise

Expanding Customer Base to Aid Q2 Results

Splunk’s portfolio strength is not only helping it win new customers but also expand into existing customer base. Solid demand for the company’s enterprise, security and cloud solutions is expected to drive the top line in the soon-to-be-reported quarter.

Notably, Splunk added more than 400 new enterprise customers. Further, cloud revenues soared 85% year over year to $62 million on the back of increased utilization of cloud-based services.

Additionally, continued investments in applications like Enterprise Security, IT Service Intelligence and User Behavior Analytics, which have solid demand, are likely to drive the fiscal second-quarter results.

Splunk’s strong partner base, comprising Amazon (NASDAQ:AMZN) Web Services (AWS), Accenture (NYSE:ACN) , Cisco (NASDAQ:CSCO) and Symantec (NASDAQ:SYMC), among others, has been a key catalyst. Integration of its products in partner solution is expected to boost the company’s exposure, particularly among enterprise customers.

Moreover, Splunk continues its transition to a renewable model (85% of the product mix for fiscal 2020), which is a tailwind. However, the transition is expected to negatively impact operating cash flow. Additionally, increasing cloud revenues in the product mix are expected to keep margins under pressure in the to-be-reported quarter.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Meanwhile, the Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

Splunk has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks With a Favorable Combination

Here are some companies, which, per our model, have the right combination of elements to post an earnings beat this quarter:

Nutanix (NASDAQ:NTNX) has an Earnings ESP of +4.80% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Smartsheet (NYSE:SMAR) has an Earnings ESP of +11.11% and a Zacks Rank #3.

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