Splunk shares drop on light Q1 outlook

Splunk executives highlighted the company's total ARR of $1.68 billion, calling it the best metric to evaluate growth.
Written by Stephanie Condon, Senior Writer

Splunk shares were down in after-hours trading on Wednesday after the company reported a lighter-than-expected first quarter outlook. Splunk executives argued that the company's annual recurring revenue rate is the best metric by which to evaluate its growth.

For the fourth quarter, Splunk non-GAAP income per share was 96 cents on revenue of $791 million, up 27 percent year-over-year. 

Analysts were looking for earnings of 96 cents on revenue of $783.19 million. 

Q4 software revenues were $617 million, up 33 percent year-over-year.

For the full fiscal 2020, Splunk's non-GAAP income per share was $1.88. Total revenues were $2.359 billion, up 31 percent year-over-year. Software revenues were $1.686 billion, up 40 percent year-over-year. 

Splunk's total ARR hit $1.68 billion, up 54 percent year-over-year. The company is targeting a 40 percent ARR CAGR over the next three fiscal years, according to CFO Jason Child.

"We expect our cloud products could represent more than 60% of our total software business in the next few years and during this shift, ARR is the best metric to evaluate our growth," Child said in a statement. 

For the first quarter 2021, Splunk expects total revenues to be approximately $450 million. Analysts expect to see Q1 revenues of $526.7 million. 

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