Splunk Q1 Result Delivers Robust Cloud Growth as Losses Narrow

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May 25, 2022Splunk Inc. (NASDAQ: SPLK), the data platform leader for security and observability, announced results for its fiscal first quarter ending April 30, 2022.

First Quarter 2023 Financial Highlights

  • Total revenues were $674 million, up 34% year-over-year.
  • Cloud revenue was $323 million, up 66% year-over-year.
  • Cloud Dollar-Based Net Retention Rate was 130%.
  • 329 customers with cloud ARR greater than $1 million, up 62% year-over-year.

Read the full Press Release here.

Splunk Q1 FY23 Earnings Report

Image Credit: Splunk


Analyst Take: This quarter’s results delivered another solid quarter and continued indication of Splunk’s transformation to Cloud and ARR as a successful one, and the first under new CEO Gary Steele.

As I see it, this quarter sets the tone for the Steele led Splunk, and it’s an opportunity for the company to settle down investor fears in an already challenging macro-environment that Splunk can execute its vision of growing ARR, increasing its Cloud ARR, and maximizing the momentum for observability while continuing to be a key cog in the SecOps space.

Large Customer Growth In the Cloud Continues to Impress

In tracking Splunk’s evolution, my focus tends to be on watching the company’s predictable revenue numbers and its larger customer base continuing to grow both via net revenue expansion and net new customers.

In the quarter, the company was able to claim 62% growth in cloud customers spending over a million dollars annually, taking that number to 329.

This growing subset of large customers should provide Splunk’s investors and stakeholders with confidence that the company is sticky and playing in the right space.

The trendline and interest in observability are on the rise as the ability to monitor massive data sets to keep enterprise technology running and data secure is not going to slow anytime soon.

New CEO Appointment – Steele’s First Quarter at the Helm

While it is early to determine what the trajectory for Splunk is under Steele’s leadership, I would say the business is showing a level or resiliency and continuity under his leadership. With Steele only being CEO for less than a month in this period, his fingerprints aren’t really on this result

I expect it to take a few quarters before the new CEO’s made all of the expected changes, but I do think the Cloud and ARR strategy remains in full effect, while the route toward a clearer dominance in observability is the opportunity to pursue.

I did have the chance to speak to Gary since his appointment, and he is saying the right things about positioning and market opportunity. The macro-environment remains complex, but I feel data-focused solutions like Splunk could be deflationary and valuable to keep data both secure and available—Tech will enable enterprises to run more cost-effectively during any market downturn that we face.

Guidance for 2022 Q2 and Full Year

Splunk provided new quarter and full year guidance (Below) which was a raise on the revenue and Non-GAAP operating margin. As the company is yet to create positive earnings, the latter number reflects its continued trajectory toward profitability, which based on its full-year guidance could happen before the end of the full fiscal.

Financial Outlook

The company is providing the following guidance for its fiscal second quarter 2023 (ending July 31, 2022):

  • Total revenues are expected to be between $735 million and $755 million.
  • Non-GAAP operating margin is expected to be between negative 8% and negative 11%.
  • The company is updating the following guidance for its fiscal year 2023 (ending January 31, 2023.)
  • Total revenues are expected to be between $3.3 billion and $3.35 billion (was previously between $3.25 and $3.3 billion.)
  • Non-GAAP operating margin is expected to be approximately 2% (was previously between 0% and 2%.)

Overall Impressions of Splunk Q1 Earnings

Splunk’s solid revenue numbers in Q1 should be seen as a clear indication that Splunk is going to be fine. While cash has shrunk over the past year, losses are narrowing, which would be a big win if positive cash flow can be realized sooner than later.

In tumultuous times, markets will almost always be less patient and more volatile than the underlying company. Splunk is an innovator in a market space that has tremendous growth potential. With strong recurring revenue and a who’s who list of customers, I find it hard to believe that the longer-term won’t pan out for the company. Competition will steadily increase, but I think Splunk’s customer list and strong positioning should help it remain top of mind in its market segments.

I remain confident at this time that the appointment of CEO Gary Steele is a good fit. However, time will be needed to see how well it all works out. And while the clock is ticking on Splunk to get to profitable in an environment where cash-flow rules, the company is moving closer to that point and I maintain steadfastly it is playing in the right areas.

Disclosure: Futurum Research is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.

Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of Futurum Research as a whole.

Other insights from Futurum Research:

Splunk Q4 Results: Surpasses $3 Billion in ARR, Names New CEO

Making Markets EP22: Former Splunk CEO Doug Merritt Talks Growth, Crypto and Why Tech (Almost) Always Wins

Splunk Turns Data into Doing with New Announcements at .Conf21

Image Credit: The Daily Crypto

The original version of this article was first published on Futurum Research.

Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. From Big Data to IoT to Cloud Computing, Newman makes the connections between business, people and tech that are required for companies to benefit most from their technology projects, which leads to his ideas regularly being cited in CIO.Com, CIO Review and hundreds of other sites across the world. A 5x Best Selling Author including his most recent “Building Dragons: Digital Transformation in the Experience Economy,” Daniel is also a Forbes, Entrepreneur and Huffington Post Contributor. MBA and Graduate Adjunct Professor, Daniel Newman is a Chicago Native and his speaking takes him around the world each year as he shares his vision of the role technology will play in our future.

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