To The Moon

As the NASDAQ Composite enters a bear market, the technology sector poses opportunities for retail investors to take advantage of market mis-pricing. I believe that technology can be divided in three categories: Automation, Big Data and Cloud. $Splunk(SPLK)$, which leans more towards the Big Data category, attracted my attention and I have decided to do further research on the company. Over the next few weeks, I will be sharing five posts as part of my analysis on the company. They will be broken down into the following sections:

Part 1: Company Introduction, Past Share Price Movements and Financial Results

Part 2: Management and Business Direction

Part 3: Problems Faced by the Company

Part 4: Macroeconomic Outlook

Part 5: Forecasting and Valuations

[Part 1 of 5] Company History, Past Share Price Movements and Financial Results

Splunk describes itself as a company that "offers an open, extensible data platform that supports shared data across any environment so that all teams in an organisation can get end-to-end visibility, with context, for every interaction and business process".

The enterprise data company IPO-ed in April 2012 at $17 per share. This put the company at the valuation of $1.57 billion in its early days on the public market. Godfrey Sullivan was Splunk's CEO until 2015 and officially left the company in March 2019. Doug Merritt took over the CEO post from 2015. During his stint, Splunk was transitioning from a perpetual license sales model to a subscription sales model for its software. By 2020, it has more than 10x its share price, exceeding $220 per share. In November 2021, he tendered his resignation. The abruptness of his resignation and the uncertainty it brought had caused an 18% drop in share price upon its annoucement. Graham Smith, Chair of the Board of Directors, had to step in to serve as the company’s interim CEO.

As at the end of January 2022, the share price was $113.87 (a 570% increase from its IPO price). Gross profit managed to grow by more than 1674% while the company had never managed to make a profit throughout the past 10 years. The annual losses had grown from $11 million in 2012 to more than $1 billion in 2022. In February 2022 and while the board was still searching for a new CEO, $Cisco(CSCO)$made a takeover offer at $20+ billion which did not lead to anything. However, if a deal had gone through, this would have meant that Splunk could have been sold for $123.74 per share.

As of April 2022, Gary Steele was named the new CEO. The board believed that he is someone with a proven track record of scaling operations and growing multi-billion dollar enterprises. At the time of this writing, Splunk's share price is $87.33. Would it have been a better deal if Splunk agreed to Cisco's acquisition? Or, is there a chance that the new CEO, Gary Steele, can turnaround Splunk's financial situation and make the company be worth more than $123.74 per share?

I have attached an image of Splunk's financials over the past 11 years for your reference.