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Why Rising Operating Expenses Are a Concern for Splunk

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Factors influencing operating expenses

Splunk’s (SPLK) operating expenses have grown continuously over the last five years, mainly driven by the higher research and development expenses and selling and marketing costs. To boost its presence in US and international markets, the company expects to maintain high sales and marketing expenses.

Moreover, to downplay competition against other big data companies such as Teradata (TDC) and Tableau Software (DATA), the company has continued to incur high product development and maintenance costs and operating expenses.

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Tailwinds and margin guidance

The chart above shows how Splunk’s operating costs have risen over the last five years, growing at a compound annual rate of 41%. In fiscal 2018, its operating costs rose 15% YoY (year-over-year) to ~$1.3 billion, and its selling and marketing costs climbed 23.7% YoY to $808 million.

The company expects a non-GAAP operating margin of -6% in fiscal Q1 2019, and 11.5% in fiscal 2018. However, Splunk’s operating costs may be offset by robust revenue growth, its move toward a subscription-based business model, and innovative product launches expanding its customer base and order size.

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