Splunk Touts Q2 Cloud Revenue Growth Despite Economic Disruption

While some customers are delaying long-term contracts, the COVID-19 pandemic has increased demand for Splunk’s machine data management software in online retail, telemedicine and other use cases.

Cloud-based software products are now driving more than 50 percent of software sales bookings for machine data management vendor Splunk and the company’s annual recurring revenue is approaching $2 billion.

“For the first time in our history, our cloud-based products drove over half of total software bookings, far outpacing expectations and squarely confirming Splunk as a cloud-first company,” said CEO Doug Merritt during the company’s fiscal 2021 second quarter earnings call Wednesday.

“This shift in growth has put us on a trajectory to reach our fiscal year 2023 cloud mix target of 60 percent two years ahead of schedule,” he said.

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For its fiscal 2021 second quarter ended July 31 Splunk reported revenue of $491.7 million, down nearly 5 percent from $516.6 million in the second quarter of fiscal 2020. The company reported a $261.3 million net loss for the quarter compared to a $100.9 million net loss one year earlier.

Cloud revenue in the quarter reached $126 million, up 79 percent year over year. Cloud contributed 53 percent to total software bookings, CFO Jason Child said on the earnings call, compared to 36 percent in last year’s second quarter and 44 percent in this year’s first quarter.

“We believe the momentum in cloud shift is sustainable and we’re pushing the transition to cloud even faster as we now plan for cloud mix to reach 60 percent this year, which is a milestone we had originally planned to hit in fiscal year 2023,” Child said.

Total annual recurring revenue (ARR) was $1.93 billion in the quarter, up 50 percent year over year. Cloud ARR was $568 million, up 89 percent year over year.

“With Cloud ARR now over a half billion dollars and total ARR nearing $2 billion, with both growing at high rates, we are rapidly building one of the fastest growing SaaS businesses at scale,” the CFO said.

The COVID-19 pandemic and the economic disruption have impacted Splunk’s business in multiple ways, Merritt said.

“Many of the purchasing trends we saw in Q1 continued or accelerated in Q2. Although some customers remain hesitant to commit to long-term contracts, especially for larger orders, many existing customers continue to expand their use of Splunk as they realize substantial value from current deployments. They drive enhanced ROI as they extend [Splunk software] to new use cases and the increasing shift to cloud,” the CEO said.

“In recent months and due primarily to the pandemic, we are seeing rapid expansion of distance learning, tele-health, online retail and remote work, all generating new kinds of data and metrics and all powered by digital technologies,” Merritt said

For the current fiscal 2021 third quarter (ending Oct. 31) Splunk is forecasting revenue to be in the range of $600 million to $630 million.