Splunk Is One to Watch

 | Oct 09, 2013 | 1:45 PM EDT
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A new position I've taken in the last two months is Splunk (SPLK).

It's been trading publicly for about 18 months and is really the best way to play the growing trend of "big data," which is a term thrown around a lot these days to refer to how companies are getting to know you better as you interact with their apps and websites and give them an idea of your interests.

We hear about it most often in relation to companies like Facebook (FB) and Google (GOOG). We're interacting with both services, doing searches and indicating what things we like. In the future, as the theory of big data goes, these companies will be able to better match ads and services they show us because they'll be able to process all the data you've shared with them over the years.

But we all know that that beautiful theory hasn't yet translated into the real world -- yet.

When I go to my Facebook page, I'm always amazed at how irrelevant the ads are to me. West Virginia singles? Excuse me? That's why companies like Splunk are so important. They're the bridge from the world today to the world tomorrow.

Up until now, Splunk has been a single-product company selling its products like services to enterprises. Its revenue growth has been slow and steady, similar to its stock price appreciation.

To some the stock seems expensive, but it's not dissimilar to many Software-as-a-Service (SaaS) companies that seemingly have high price-to-earnings ratios. But these companies have the advantage of enormous predictability of future revenues. There's very little churn. People will buy more down the road. Splunk has benefitted from that trend over its history.

Splunk's big selling point is that after all these enterprises have invested heavily in IT infrastructure and then generate mountains of data to make sense of, they need to bring some intelligence to that unstructured data. That's exactly what Splunk does -- and does it very well.

To date, Splunk has only done it as a single-product company. As of last week's analyst day, it announced it's branching out into multi-products. For example, it has a new data intelligence product that is geared towards clients with a Hadoop data structure layout (also called HUNK).

Obviously, these new products will help drive more revenue going into 2014. What should also help is that Splunk has very specialized sales staff that typically needs six to nine months to ramp up to become producers. It made a bunch of hires about six months ago, so we should really start beginning to see it produce.

Earlier this year, Splunk had one customer that gave it a single order for $20 million. At the time, it was doing about that in quarterly sales. The point is that we're hopefully on the cusp of order sizes really starting to increase. Splunk is the way I'm playing big data.

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