What to Expect from Splunk (SPLK) in Q2 Earnings Release?

Splunk Inc. (SPLK Snapshot Report) is scheduled to release second-quarter fiscal 2016 results on Aug 27. Splunk posted a negative surprise of 14.29% in the last quarter. The company has posted an average negative surprise of 24.57% over the trailing four quarters. Let’s see how things are shaping up for the upcoming announcement.

Factors to Consider

In the last quarter, Splunk posted greater-than-expected losses despite significant improvement in revenues. The higher-than-expected loss was primarily due to a sharp rise in operating expenses.

We believe that Splunk’s strong product pipeline will continue to boost top-line growth. However, increasing investments in research and development, coupled with higher operating costs, are anticipated to be a near-term drag on profitability. As Splunk continues to explore and expand into new markets, sales and marketing expenditures are also predicted to rise significantly, thereby hurting margins in the near term.

In July, the company acquired a machine learning and analytics services provider – Caspida, Inc. for $190 million.This deal significantly strengthens Splunk’s cyber security offerings. Caspida has made a name for itself in using machine learning to automatically detect threats, which when coupled with its extensive data management portfolio can significantly improve security offerings.

However, the company continues to face tough competition from established players such as International Business Machines (IBM Analyst Report) and Oracle (ORCL Analyst Report), which remains an overhang on the stock.

For the second quarter, the company projects revenues within $138 million and $140 million and non-GAAP operating margin in the range of 1% to 2%.

Earnings Whispers?

Our proven model does not conclusively show that Splunk is likely to beat the Zacks Consensus Estimate this quarter. Thisis because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below

Zacks ESP: The Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 51 cents.

Zacks Rank: Though Splunk’s Zacks Rank #3 (Hold) increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Stock to Consider

Here is a stock you may want to consider as our model shows that it has the right combination of elements to post an earnings beat this quarter: 

Campbell Soup Company (CPB Analyst Report) with an Earnings ESP of +4.76% and a Zacks Rank #2 (Buy).

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Source: What to Expect from Splunk (SPLK) in Q2 Earnings Release?

Via: Google Alert for ML