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What Caused Splunk’s Shares to Surge 10%?

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Splunk’s better-than-expected guidance for 2017 helped the company’s stock movement

Previously in the series, we discussed various factors that helped Splunk (SPLK) in achieving revenue growth in its recently announced fiscal 4Q16 earnings. Though profitability continues to be a source of concern, the prevailing not-so-optimistic climate in the entire tech sector, which was worsened by weaker-than-expected 2016 guidance from Tableau Software (DATA) and LinkedIn (LNKD), has added to the company’s woes.

Apart from beating analysts’ expectations, Splunk cheered its investors when it provided better-than-expected guidance for fiscal 2017. This helped the company’s stock surge by more than 11%. The stock has been volatile for quite some time.

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For fiscal 1Q17, Splunk expects revenue between $172 million and $174 million, which exceeds analysts’ estimates of $170.8 million. For the full fiscal 2017, Splunk raised its revenue guidance and now expects revenue of $880 million. Splunk’s fiscal 2017 guidance also beat analysts’ expectations of $854.2 million.

Also, despite the loss, Splunk’s free cash flow totaled $104.3 million in fiscal 2016, which was way higher than the company’s non-GAAP net income of $23.6 million in 2016. Also, the company stated that it added over 600 new enterprise customers in fiscal 4Q16. In total, the company now has over 11,000 customers.

Salesforce raised guidance

Salesforce (CRM), a prominent player in the cloud space, recently announced fiscal 4Q16 results that met analysts’ expectations. The company also raised its guidance for 2017. Salesforce’s stronger-than-expected guidance not only pushed its stock up, but it also pushed up Workday’s (WDAY) stock too. Salesforce and Workday’s stock rose ~10% and ~5%, respectively, after Salesforce released its fiscal 4Q16 earnings. Workday is scheduled to announce fiscal 4Q16 earnings on February 29, 2016.

Investors who wish to gain broad-based exposure to Splunk can consider investing in the iShares US Technology ETF (IYW). IYW has an exposure of 46.7% to application software and invests ~0.15% of its holdings in Splunk.

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