Shares of Splunk Inc. (NASDAQ: SPLK) nosedived on Thursday, as investors dissected a better than expected earnings report that showed a quarterly loss of more than $100 million. The selloff followed a large spike in after-hours trading on Wednesday shortly after the earnings report was released.

 

Q2 Earnings Summary

  • Earnings (adjusted): $0.30 per share
  • Revenue: $516.6 million
Revenue represented a gain of 33% over year-ago levels.

Splunk reported a net loss of $100.9 million in the second quarter, though adjusted earnings came in at $0.30 a share on revenue of $516.6 million. Analysts in a median estimate had called for per-share earnings of $0.12 on revenue of $488.4 million.

The revenue beat was significant for one other reason: It represented a gain of 33% over year-ago levels. License revenue, the company’s largest segment, came in at $279.3 million, well ahead of the $250 million expected.

The data analytics software company announced Wednesday that it had acquired cloud-monitoring service SignalFX for $1.05 billion. The cash-and-stock deal is expected to bolster Splunk’s application monitoring service. As Forbes notes, SignalFX raised $179 million at a valuation of $500 million. The company generated $25 million in revenue last year. Venture capital backers include Andreesen Horowitz and CRV.

“I am excited by our strong quarter, tremendous cloud growth and our agreement to acquire SignalFx,” Splunk CEO Doug Merritt said during the earnings call, according to The Street. “I am particularly pleased with how quickly we are accelerating our business transformation to cloud, and the impact cloud is having on our customers.”

Strong revenue numbers allowed the company to raise its fiscal 2020 guidance to $2.3 billion, which is slightly higher than the previous estimate of $2.25 billion. Analysts were expecting $2.26 billion.

 

SPLNK Pumps and Dumps

Splunk’s stop price surged by as much as 10% in post-market trading on Wednesday, reaching a high of $141.25. The stock opened sharply lower on Thursday, losing as much as 9%.

The stock is down 18% from its yearly high, putting it closer to bear-market territory. SPLNK is up more than 13% year-to-date, well below the Nasdaq Composite Index, which has returned nearly 21%. Before the selloff on Thursday, the stock was up around 24% for the year.

At current values, Splunk has a total market capitalization of $17.8 billion.

SPLNK stock currently has a “hold” rating by Zacks Investment Research. In terms of value, it ranks in the top 33% of internet-software companies.

 

Conclusion

Splunk’s acquisition of SignalFX could be a game changer. The cloud company was recently named one of the 25 most-likely ventures to reach $1 billion in value by Forbes. The acquisition puts Splunk in the same arena as Cisco and Dynatrace, at least as far as application performance monitoring is concerned.

Disclaimer: Author holds no investment position in Splunk at the time of writing.