Analysts: Splunk's Shift To Term Licenses Is Revenue Headwind

Splunk Inc (NASDAQ: SPLK) fell sharply Friday despite beating first quarter estimates and multiple love notes from Wall Street analysts.

The analytics software company traded down more than 4 percent recently at $67.76.

The sell-off was sparked by concern that Splunk's billings growth slowed to 38 percent in the recent first period, from 53 percent in the fourth quarter, according to FBN's Shebly Seyrafi.

But Seyrafi reiterated an Outperform on Splunk, joining colleagues at Macquarie, JMP, and FBR & Co. which maintained the same rating.

A shift to term licenses from outright sales "represents a headwind" to revenue and billings, according to Morgan Stanley's Keith Weiss who nonetheless reiterated his Overweight rating on Splunk.

Term licenses rose to 43 percent of license billing in the recent quarter, from 25 percent a year earlier, according to Weiss, who expects the trend to stabilize.

Pacific Crest's Brent Bracelin also maintained an Overweight rating, boosting his full-year revenue estimate by 1 percent to $613.3 million on "momentum" in large deals and security and cloud-related business.

Even with the shift in billing practices, D.A. Davidson's Jack Andrews raised his full-year revenue forecast for Splunk by 6.2 percent to $633.8 million and reiterated a Buy rating.

But Barclay's Raimo Lenschow held fast with an Equal-Weight rating and said he continues to see "expectation risk" in owning Splunk shares.

The margin by which Splunk beat first-quarter revenue expectations was narrower than in previous quarters, according to Lenschow.

"Splunk is simply a victim of large numbers here," Lenschow said. "Investors have become accustomed to larger beats."

Splunk on Thursday said first quarter revenue grew 46 percent to $126 million, versus a consensus of $118.2 million, while its loss of $0.01 a share was $0.02 narrower than expected.

The company also forecast second quarter revenue of about $139 million, compared with analysts' average forecast of $136.4 million.