Specialist
Former director at Splunk Inc
Agenda
- Splunk’s (NASDAQ: NYSE) focus areas of security, IT operations and observability and the company’s cloud transition
- Competitive environment, noting pricing pressures and companies including AppDynamics (NASDAQ: CSCO), Datadog (NASDAQ: DDOG), Dynatrace (NYSE: DT), Elastic (NYSE: ESTC), Exabeam and New Relic (NYSE: NEWR)
- Corporate governance, noting multiple management changes over the past year
- 1-3-year outlook
Questions
1.
Could you describe Splunk and how it’s evolved over the last couple of years?
2.
Splunk offers three types of solutions, the Splunk platform, Splunk solutions and ecosystem solutions. Splunk solutions also includes three types of offerings, security solutions, IT solutions and observability solutions. What do you think about Splunk’s business priorities and revenue mix with those specifics in mind?
3.
You mentioned security accounts for around 60% of revenue. How do you think the other 40% splits across IT operations and observability? Is it evenly split? It seems IT operations would be more significant.
4.
Splunk’s transition to cloud has been a multi-year process, which is not unusual, but there have been some challenges over the last couple of years. Why do you think that is? Is it normal to have a massive initiative to transition not just technologies but customers to cloud solutions? According to Splunk’s Q2 FY22 results, cloud net new annual recurring revenues increased by only 13% YoY. That was against a difficult comparison, because in the prior year there was growth of 140%, but if you survey the last year in Q3 FY21, that metric actually declined over the last five quarters. Cloud has bounced around between 46% and 56% of software bookings. Do you think there have been more challenges than expected? If so, why?
5.
How far along do you think Splunk is in the cloud transition process? Are there any benefits to the company having the cloud solution in place and also keeping the on-prem legacy offering, which presumably appeals to certain types of customers and may be a differentiator in the marketplace?
6.
In Q2 2021 Splunk had USD 217m in cloud revenue out of a little over USD 600m in overall revenue, so about 35% of revenues coming from cloud. That’s better than it was but there’s still room for improvement. Autodesk and a handful of other companies have done that transition, but even if you take Adobe, one of the first to announce and push towards a cloud transition, it’s still not fully there. How can Splunk both engage in this cloud transition, which probably needs another year or two, and continue to focus on and deliver innovation? Do you think the focus on the cloud transition has forced the company to pull in the reins a bit and not be as open-minded about innovation? What has the company been doing from an innovation standpoint? What are its focus areas? AI and machine learning strikes me as one obvious opportunity.
7.
Do you think Splunk can wrap up the cloud transition, fend off competition and restart the innovation engine all at once over the next year or two? What does it need to get right to get back on track?
8.
Splunk highlights a TAM of about USD 81bn and only 2% penetration by the company. It highlights USD 28bn in IT operations. Platform, security and observability each have about USD 17bn-19bn in opportunity. Are those numbers consistent with your opinion on these opportunities? Do you think the company is under
appreciating or overestimating some of the market opportunity? What about the growth, especially with these very large opportunities? There have been substantial changes in Splunk’s growth trajectory over the last couple of years.
9.
How significant is the competition in IT operations, security and observability? Who is most formidable? You referenced a couple of observability companies, Datadog and Dynatrace.
10.
Is CrowdStrike the most formidable competitor in security or is it the concepts of XDR [extended detection and response] more broadly that prove the most significant broad competition? Is it a technology competition or is it that CrowdStrike has been doing the equivalent of that and adding modules to its offering so it can do a lot of different things? Is it more about people thinking about the technologies differently?
11.
Who are the most formidable competitors in IT operations?
12.
Who are Splunk’s most formidable or frequent competitors in observability? Are they Datadog and Dynatrace?
13.
How formidable a competitor is Elastic? It seems to have a fair amount of momentum vs Splunk.
14.
Splunk’s observability business has historically focused on metrics, tracing and logs. Its competitors have been investing in those facilities and doing them well. Do you think Splunk has to respond by investing more to create a comprehensive offering that stands up to what other companies are doing? Or is this less important, given that observability is less than 10% of Splunk’s revenue and if it does not prevail in certain competitive contexts, so be it? What do you think about its disadvantages vs competitors?
15.
Why does Splunk tend to win new customers? Is it because it can do so many different things? How powerful is that in today’s marketplace? How much are decisions driven by the fact Splunk can offer several different solutions that are connected and can serve in a number of different environments vs a lot of companies that have just one offering that is not really connected? How does that relate to pricing?
16.
It’s well-understood that Splunk is pricing at a premium vs competitors. Can you give a sense of where you thought that premium might have been relative to an average of competition vs where you think it is now and where it might be going?
17.
We discussed how some customers are de-emphasising Splunk and only putting certain amounts and kinds of data into it because of the pricing. The implication is that those customers want to continue working with Splunk but they want to control the amount they’re paying out to the company. Does Splunk have a response to that? How can it counterbalance that approach? What is its strategy? How successful do you think it has been and will be?
18.
Splunk has announced a host of executive changes and appointments. Some people have been promoted internally, but a number of people have been brought on from AWS [Amazon Web Services], including Chief Product Officer Garth Fort, President of Products and Technology Shawn Bice and Chief Growth Officer Teresa Carlson. What is Splunk trying to do here? Is it the fact that it’s shifting the business model, so it feels it needs people who have been successful in the cloud business? Is it just that it needs to build out the team? What do you think about the changes?
19.
What is your 1-3-year outlook for Splunk? What are the notable opportunities and risks?