Splunk posts strong Q3, rides big data, M2M

Splunk, a big data company that focuses on surfacing information served up by sensors and other machines, reported a better-than-expected third quarter and delivered a solid outlook.

Specifically, Splunk reported a third quarter net loss of $5.5 million, or 6 cent a share, on revenue of $52 million, up 67 percent from a year ago. License revenue was up 56 percent. Splunk lost a penny a share on a non-GAAP basis in the third quarter.

Wall Street was looking for a loss of 2 cents a share on revenue of $46.77 million for the third quarter.

As for the outlook, Splunk said it will have fourth quarter revenue of $58 million and $60 million with fiscal 2013 sales of $192 million to $194 million. That outlook was in line with expectations.

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The big takeaway here is that Splunk landed 350 new enterprise customers. Splunk has a freemium business model and has done well upselling customers. Enterprises are using Splunk to gain intelligence on operations.

At the Gartner Symposium in October, Splunk's booth and demos garnered a lot of interest from chief information officers. Splunk also recently launched Splunk Enterprise 5, the latest version of its primary application.

Analysts were upbeat on Splunk's prospects following the third quarter results. To wit:

Cowen & Co. analyst Peter Goldmacher said:

We were pleased to hear that Splunk intends to increase its sales headcount ahead of its initial expectations of 140 – 150 reps this year to 160 reps. Market demand is clearly there and more sales people will help drive sustained high growth. The company did 125 deals over $100K this Q versus 98 deals over $100K last Q. We think Splunk is still in the very early innings, as customers are using the products to solve problems they know they have (90% of revs are from Security/IT Ops/Apps Mgmt). The future is using machine data to discover opportunities customers didn't know existed.

JMP Securities analyst Greg McDowell said:

We continue to like this stock because Splunk has a rapidly growing customer base, it is leveraged to the big data trend, we like its freemium business model and unique licensing model (based on peak daily volume of raw uncompressed data indexed). We believe the Splunk customer base stands to invest heavily in Splunk projects over the next 12 months.

Morgan Stanley analyst Adam Holt noted:

Perhaps even more exciting in Q3 were the new growth drivers coming on-line. 1) the new cloud-based Splunk Storm attracted almost 100 customers. in its 1st quarter out, 2) >40 new apps and plug-ins on Splunkbase illustrates both an expanding ecosystem, as well as, new potential rev. sources as SPLK has seen strong growth in their 2 paid apps, and 3) quota carrying sales reps hiring accelerated materially in the quarter.