Splunk Analysts Say Lower Cash Flow Outlook Overshadows Beat

(Bloomberg) -- Splunk Inc. shares slipped as analysts said strong first-quarter earnings and revenue were dinged by a reduced cash flow outlook and slower customer additions.

The data-analytics software maker is seeing a mix shift in its bookings and shorter contracts that are weighing on operating cash flow. While analysts largely see this as a temporary issue that should improve next year, another quarter of reduced cash flow guidance wasn’t appealing to investors. The stock fell as much as 4%, on track to extend a three-day slump.

Here’s what Wall Street is saying:

Guggenheim, Imtiaz Koujalgi

Guggenheim views the quarter as “mixed” with billings missing estimates and a lower outlook for operating cash flow for the year, which the bank had highlighted as a concern in a note to clients two months ago. New customer additions also weakened with 400 new customers in the quarter, down 13% from the prior-year period.

Rates neutral, price target cut to $115 from $125

Piper Jaffray, Alex J. Zukin

On a call with investors, Splunk’s strong quarter was overshadowed by questions about its reduced cash flow outlook. The company “meaningfully” cut its forecast for fiscal 2020 operating cash flow to $250 million from $350 million amid headwinds from the bookings mix and lower billings duration.

“Despite strong bookings success in the quarter, Splunk was vocally disappointed with regard to the number of net new customers added in the quarter,” according to Piper Jaffray. “Management indicated the company added over 400 net new customers in the period, with 18,000 in total. This compares to 460 net new customers and 15,860 total customers in the year-ago period.”

Rates overweight, price target $160

Raymond James, Michael Turits

The cash flow outlook was cut again due to “a faster mix shift to renewable revenue with shorter invoice duration.” The renewable mix is now expected to be “at least” 85%. Like last quarter, cash flow was the only weaker forecast, Raymond James said.

Rates outperform, price target $157

Morgan Stanley, Keith Weiss

Splunk’s results showed “another quarter of material upside” with an estimated 30% normalized revenue growth, which Weiss said is “impressive for a company of its scale.”

At the same time, investor patience may be tested by contractor invoicing changes affecting the fiscal 2020 cash flow outlook. Morgan Stanley expects cash flow to improve next year with fewer moving pieces in the business model.

Rates equal-weight, price target $140

What Bloomberg Intelligence says

“Splunk will have to rely more on its existing customer base for sales momentum, given new user growth slowed to 3% sequentially.”
-- Mandeep Singh and Andrew Eisenson, technology analysts
-- Click here for the research

To contact the reporter on this story: Catherine Larkin in Chicago at clarkin4@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Steven Fromm, Bailey Lipschultz

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