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Splunk (SPLK) is a Zacks Rank #1 (Strong Buy) that develops and markets cloud services and licensed software solutions. The stock was a high-flyer back in 2020 as cloud-based stocks were the hot new thing. However, the market became saturated and the cloud bubble popped, bringing Splunk shares down over 70% in two years.

The stock looks to have bottomed, almost doubling off its 2021 lows from October. Splunk is now consolidating in a sideways trade since pulling back after a big earnings beat.

Investors seem to have accepted the current market price for the stock as they wait for the next catalyst.

More about Splunk

The company incorporated in 2003 and is headquartered in San Francisco, California. It employs 8,000 and has a market cap of $15.3 billion.

Splunk has a focus in two markets: Security and full-stack monitoring & analysis. Revenues stem from the sale of software licenses, cloud subscriptions, and maintenance and support.

The stock has a Zacks Style Score of “A” in Growth, but “F” in Value. The Forward PE is 33 and the stock pays no dividend.

Q4 Earnings

Splunk reported earnings in early March, seeing an 84% surprise to the upside. The company also beat on the top line, but issued weak guidance.

Splunk guided Q1 revenue at $710-$725M vs the $807M expected and guided FY24 revenues at $3.85-3.9B vs the $4.02B. The numbers were disappointing and the stock sold off about 15% in the week after the earnings release.

However, the stock has stabilized and it looks like investors are focusing on the long-term as the stocks sees estimates revised upwards for the current year.

Estimates Mixed

Short-term, we still see estimates headed in both directions. While analysts dropped their numbers after the March earnings, we see a small tick higher for the current quarter. Over the last week analysts have lifted estimates a tick, going from -$0.12 to -$0.11.

For next quarter, we see a small tick down. Over the last 7 days, we see numbers fall to $0.26 from $0.27.

So to go along with the stock, there is a flatlining of the short-term earnings expectations.

But when we look to the current year, we see estimates have ticked 8% higher since earnings, going from $2.55 to $2.75. For next year we see a hike of 5%, with analysts lifting numbers from $3.14 to $3.30.

Analysts that are bullish on the stock cite significant growth opportunities in the observability, cybersecurity, and core machine search markets. Additionally, Splunk has made cost-saving and operating leverage improvements.

The Technical Take

Splunk was a cloud darling in 2020, hitting highs of $225. But over the last two years, the stock fell to $65 before rallying to $110.

While the stock is well off its lows, its struggling to break away from its 200-day moving average. SPLK has been glued to the $92 level, no higher than 6% above or below that price. This is a tight range for such a volatile stock and something must give.

Earnings will be the catalyst, so investors should watch for similar companies reporting as we approach SPLK earnings in late May.

For those looking to buy, here are some levels.

21-day Moving Average (MA): $92

200-day MA: $91.50

Fibonacci support (50%): $87.50

Fibonacci support (61.8%): $82.50

The 50-day MA is at $96.50 and will provide resistance until a catalyst can break through it. Upside levels to consider taking profits would be $120-125 and $145-150

In Summary

While the numbers are not quite there yet, the bulls see some opportunity headed into next quarter and especially next year. The next earnings report will be a major catalyst that will either help the stock well above $100 or take out recent lows.

Bulls should be looking to accumulate shares at support levels and watch estimates for any big changes in expectations.

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