Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Junk Pile

Is Splunk making money?

Splunk (NASDAQ: SPLK) shows that cloud services companies may not make money from Coronavirus.

Notably, Splunk (SPLK) which creates Big Data management software reported a -$288.61 million operating loss for quarter ending on 30 April 2020. That operating loss grew from -$7.77 million in the previous quarter.

In addition, Stockrow estimates Splunk’s quarterly revenue growth rate fell from 27.18% on 31 January 2020 to 2.17% on 30 April 2020. Moreover, Splunk’s quarterly common net loss grew from -$22.73 million on 31 January 2020 to -$305.58 million on 30 April 2020.

Notably, Splunk’s quarterly revenues fell from $791.18 million on 31 January 2020 to $434.08 million on 30 April 2020. Depressingly, Splunk’s quarterly gross profit fell from $663.34 million on 31 January 2020 to $305.46 million three months later.

Will Coronavirus kill Splunk’s business?

Therefore, Splunk’s business shrank because of coronavirus. My guess is that Splunk’s business is shrinking because fewer people are at the office.

To explain, there are fewer people are in the office using information technology (IT). However, corporate IT departments are Splunk’s main customers. Yet corporate IT’s main job supporting officers could no longer exist.

For example, Stanford economist Nicholas Bloom estimates 42% of Americans were working from home in June 2020. Unfortunately for Splunk, those workers may never return to the office.

For instance, the Partnership for New York City estimates only 8% of the New Yorkers working from home because of coronavirus had returned to the office in August 2020. Thus data shows work from home is the new normal in corporate America.

Can Splunk find New Markets?

Hence, I think Splunk (SPLK) will need to service people working from home to survive. Splunk could also find new customers in the hotel or casino industries.

MGM Resorts International (NYSE: MGM), for instance, is promoting a “Work from Vegas” promotion in which people can use rooms at the casino as their home offices.  Thus, MGM Resorts will need to expand its IT and offer the IT services now found in office buildings. Other companies that could imitate MGM Resorts include other casino operators, Disney (NYSE: DIS) (work from Disneyworld?), cruise ship companies, resort operators, and big hotel companies; such as Hyatt, or Marriott.

Can Splunk (SPLK) make money from Work from Home?

Other markets, Splunk could tap are apartment and condominium owners, and companies that need work-from-home solutions for employees. For example, an investment bank that needs to give its bankers secure access to its data from home.

Spunk could tap the work-from-home market with its Data-to-Everything Platform that could connect databases and other corporate systems to workers at home. One advantage Splunk will have servicing home workers is over 2,000 Splunk Apps.

An opportunity for Splunk is all the people who need data but refuse to go to the office to access it. To elaborate, home workers cannot walk down the hall to the file room. Yet home workers need to access to all the files. Splunk could build a system that allows people working at home to access all the company’s files.

I think Splunk’s web-style interfaces could give home workers that kind of access.

How Much Cash Does Splunk Generate?

Splunk (NASDAQ: SPLK) is generating cash. Splunk’s quarterly operating cash flow rose from -$58.83 million on 31 March 2020 to $46.04 million on 30 June 2020.

Splunk is generating more cash. Splunk’s quarterly investing cash flow grew from -$64.70  to $147.01 million on the same date. Impressively, Splunk’s ending cash flow grew from -$94.82 million on 31 March 2020 to $922.31 million on 30 June 2020.

Splunk had $1.757 billion in cash and short-term investments on 30 April 2020. However, that number fell from $2.675 billion on 30 April 2019.

Mr. Market Overprices Splunk

I think Mr. Market overpriced Splunk Inc. (NASDAQ: SPLK) at $192.83 on 10 September 2020. I do not think Splunk makes enough money to justify that figure.

However, Mr. Market disagrees; his price for Splunk grew from $151.98 on 2 January 2020 to $223.59 on 1 September 2020. I think the share price growth gives Splunk no margin of safety.

I believe Splunk does not have enough cash for a margin of safety. Instead, I consider Splunk a company that could collapse fast because it has no cash.

I think investors need to stay away from Splunk (SPLK) because it has no margin of safety. Instead, there are better and safer cloud services stocks in the market, such as Amazon (AMZN), Microsoft (MSFT), and Oracle (ORCL).

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