Rolfe Winkler, The Wall Street Journal, April 18, 2012
WSJ's Rolfe Winkler makes a stop on Mean Street to discuss the upcoming IPO of tech company Splunk. He and Evan Newmark ponder if a tech bubble is looming closer. Photo: Getty Images.
Splunking is the new googling. And it could make investors a tidy sum of money.The new verb tossed around by information-technology pros comes courtesy of Splunk, a startup specializing in data analysis that will open for trading Thursday after staging its initial public offering. The company is one of many capitalizing on the explosion of information, a trend being referred to as "Big Data."
Splunk's particular specialty is collecting and processing so-called "machine data." From web sites to cell phones to smart meters to GPS equipment, machines create little bits of information all the time. So much gets created, it is often lost after being recorded on a server somewhere.
When you click through an e-commerce web site, you visit lots of different product pages, put items in a shopping cart, and maybe disappear without buying anything. A company that could follow its customers to determine why they don't complete their order might be able to isearchable—is similar to what Splunk does with machine data. Its software is available free on a trial basis to start. Often someone inside a company will start using it, find it useful and then others will start using it themselves for their own projects. Splunk starts charging as more data gets plugged in. Yet the product is still cheaper than many older software alternatives currently on the market. The formula has worked well so far. Splunk reported $121 million of revenue in the fiscal year that ended in January, up 83% from the prior year. That growth has excited IPO investors.
Originally Splunk planned to price its shares in a range between $8 to $10, but has since bumped up the target to between $11 and $13. Investors lucky to get in on the shares around that price could see them pop significantly.
At first glance, the pricing seems aggressive. The valuation of the company net of cash would be around $1.3 billion at a $13 share price. Splunk is unprofitable.
Yet combine Splunk's growth rate with the appeal of its technology and the firm looks a mouth-watering takeover target for a larger software company like BMC Software, BMC 0.00% International Business Machines IBM -0.38% or Hewlett-Packard HPQ -0.02% .
A valuation of 10 times forward revenue would be in line with previous deals, for storage-software companies 3PAR and Isilon Systems. Assuming Splunk grows at, say, 70% this fiscal year, that would translate to a roughly $20 share price.
To be sure, the company has faced growing pains. Older versions of its software were buggy. And as it has expanded, Splunk has had trouble keeping up with customer demand for support. Yet it has mostly overcome these issues.
Look for the company to cash in nicely as a result.
Originally Splunk planned to price its shares in a range between $8 to $10, but has since bumped up the target to between $11 and $13. Investors lucky to get in on the shares around that price could see them pop significantly.
At first glance, the pricing seems aggressive. The valuation of the company net of cash would be around $1.3 billion at a $13 share price. Splunk is unprofitable.
Yet combine Splunk's growth rate with the appeal of its technology and the firm looks a mouth-watering takeover target for a larger software company like BMC Software, BMC 0.00% International Business Machines IBM -0.38% or Hewlett-Packard HPQ -0.02% .
A valuation of 10 times forward revenue would be in line with previous deals, for storage-software companies 3PAR and Isilon Systems. Assuming Splunk grows at, say, 70% this fiscal year, that would translate to a roughly $20 share price.
To be sure, the company has faced growing pains. Older versions of its software were buggy. And as it has expanded, Splunk has had trouble keeping up with customer demand for support. Yet it has mostly overcome these issues.
Look for the company to cash in nicely as a result.
