Splunk has a throughput problem and plans to throw money and salespeople at the issue so it can grow its total addressable market. Splunk's goal is simple yet hard to execute: Become an enterprise standard.
How many companies have such demand that they have to figure out how to attack new industries with an army of sales folks? That takeaway is the bottom line for Splunk, which incidentally missed its earnings target for the fourth quarter but is getting a free pass due to revenue growth.
Splunk reported strong fourth quarter growth and followed up this morning with a partnership with Symantec, which will use the company's platform for security investigations. Symantec will be a big customer and partner for Splunk, which has a lot of momentum in both security and IT monitoring.
What has analysts so giddy about Splunk is that the company's algorithms and big data monitoring tools---with improving user interface---can be applied to financial services, fraud, telecom and a bunch of other industries.
Pacific Crest analyst Brendan Barnicle calls Splunk's opportunities "cavernous." He said:
The potential use cases for Splunk's technology are vast. So vast, in fact, that we believe the sales team may not be attacking each vertical with optimal efficiency. Management is aware of this, and has taken the first step by segmenting the sales team by client size. As Splunk achieves greater scale, we believe it will ultimately segment its sales team by industry vertical.
In other words, Splunk will follow the well worn playbook of most enterprise software vendors. Enterprise technology companies woo the big accounts, land an industry leader and then a whole vertical follows. From there, a software company can own an industry. Oracle and SAP use this approach very well.
There are a few caveats for Splunk though. For starters, it's unclear the company can get the sales efficiency it needs. You don't hire hundreds of sales people without growing pains. There are also competitors coming into the market, but you'd never know it from Splunk's results---7,000 customers and growing six and seven figure deals.
Cowen analyst Peter Goldmacher said:
Splunk’s total addressable market is only constrained by customer creativity, and customers are getting more creative every quarter. The momentum in the business, specifically the percentage of sales from existing customers, validates the company’s decision to accelerate investments in growth, in our view. In addition to more quota carrying reps, the company is going to build out domain expertise in specific areas to drive penetration beyond the layer of sophisticated customers that inherently understand the opportunity of analyzing machine data.
Splunk CEO Godfrey Sullivan listed a bevy of customers and new use cases on the company's earnings conference call. This fiscal year will be the one where enterprises broadly adopt Splunk. Sullivan seems to really dig this enterprise thing.
If you look across our large customers, we may be in two-thirds of the Fortune 100. But in most cases we enter in a single use case and we are there for a while and then we work our way across departments and all that.
Where I want to be is just like where we are with Intuit, where they have basically announced that they have standardized on us for all machine data analytics and they are using us everywhere throughout the Company. That's our opportunity with every customer is for them to use us all across the board. Not just in one department or two departments.
When I think about us becoming an enterprise vendor and successful at the enterprise scale, it's really about us being as ubiquitous in every one of our customers as an operating system is or as a data base or as an enterprise data warehouse, where they're using us for as many use cases as we can give them value.
I just think we have such a long way to go there. I'll be on this enterprise kick for a few more years.