Splunk Transition To Cloud Accelerated In Q1 Ahead Of Expectations

Company reports 52 percent growth in annual recurring revenue but sees limited visibility and trend toward shorter-duration contracts amid economic uncertainty.

Sales growth for Splunk’s cloud software accelerated in the company’s fiscal 2021 first quarter, but economic uncertainty created by the coronavirus pandemic is leading to shorter term contracts and reduced visibility for upcoming quarters.

Splunk, which develops “Data-to-Everything” software for collecting, searching and analyzing machine-generated data, noted that as businesses and organizations try to navigate through the current economic uncertainty, demand for the company’s offerings could rise as customers look for ways to improve operational visibility.

“Since the start of this pandemic, one of our key priorities has been helping our customers transition to a new virtual working environment,” Splunk CEO Doug Merritt said during an earnings call with financial analysts Thursday. “Splunk's core tenets are about providing near real-time visibility, the ability to act quickly on data and applying Splunk to virtually unlimited use cases across an organization.”

[Related: Splunk Cancels .conf2020 Live Event, Conference To Go Virtual]

In response to the pandemic and economic slowdown, for example, Splunk has rolled out several new offerings and free product trials for customers, including the new Remote Work Insights that gathers data and provides dashboards and key metrics for remotely managing IT and cloud infrastructure performance and productivity.

“Customers across all sectors are trying to understand the economic impacts of the current COVID-19 business environment,” Merritt said. During the first fiscal quarter, ended April 30, 2020, signed contracts “tended to be shorter in duration,” going from 34 months in the last quarter of fiscal 2020 to 27 months in the just completed quarter. “We see this being especially prominent in sectors hardest hit by the crisis, like retail, hospitality and travel.”

That impacted total contract value and bookings for the quarter, the CEO said, and lower total revenue recognized for the period. But year-over-year growth in annual contract value was higher in the just-completed quarter than it has been in recent quarters.

“Looking further out, visibility of the next few quarters is limited, primarily due to the macro environment. Our focus will be to ensure that we're tightly connected to our customers and partners as they work through their dynamic environments, as well as taking care of our employees’ well-being, enabling their productivity, and to continue to optimize our investments,” Merritt said.

For the fiscal 2021 first quarter (ended April 30) Splunk reported revenue of $434.1 million, up 2.2 percent from $424.9 million one year before.

That included a nearly 81 percent increase in cloud services revenue to $112.2 million, but a 27 percent decline in license revenue to $148.4 million. Splunk has been shifting to a SaaS model and cloud sales drove nearly half of software bookings in the quarter with annual recurring revenue growing 52 percent year over year to $1.78 billion, the company said.

Maintenance and service revenue grew 8.5 percent in the quarter to $173.5 million in the quarter.

Splunk reported a net loss of $305.6 million for the quarter, nearly double the $155.4 million loss one year earlier.

For the current quarter ending July 31 Splunk is forecasting total revenue of approximately $520 million. But given the uncertainty of the current economic situation the company has withdrawn its previous guidance for all of fiscal 2021.

Merritt said the transition to cloud product sales “accelerated ahead of our expectations.” Sales of Splunk Cloud and other cloud products accounted for more than 40 percent of revenue, the company said.

Earlier this month Splunk announced that Splunk Cloud is available on the Google Cloud Platform and launched an initiative with Amazon Web Services to help customers migrate on-premises Splunk workloads to Splunk Cloud on the AWS cloud. In March Splunk debuted a new release of its cloud-native SignalFx Microservices APM cloud infrastructure monitoring system.