Splunk's fiscal second-quarter performance looked ugly. In contrast to competitors that have recently posted strong double-digit revenue growth, the data specialist's top line declined despite sales and marketing expenses reaching almost two-thirds of revenue. However, investors should pay closer attention to the company's performance as its transition to the cloud hides a more attractive long-term story.
Splunk offers solutions to store, monitor, and analyze data from applications and devices. And given the digitization of enterprises, the quantity of data is exploding. Research specialist IDC estimates that the collective sum of the world's data will grow at a compound annual growth rate (CAGR) of 61% through 2025, which bodes well for Splunk.
Yet the company posted underwhelming second-quarter results as revenue declined 5% year over year to $491.7 million. In contrast, some competitors delivered much stronger numbers on the top line.