Splunk shares plunge on CEO's step down

143
2
Splunk shares plunge on CEO's step down

The software company's chief executive has stepped down and the shares of Splunk Inc. are plunging Monday after the software company announced that its chief executive has stepped down.

Graham Smith, Chair of Splunk's SPLK board and a former Salesforce.com Inc. CRM, chief financial officer, will move into the role of interim chief executive immediately. He replaces Doug Merritt, who served as Splunk's president and CEO for six years.

The Board is focused on identifying a leader with a proven track record of scaling operations and growing multi-billion dollar enterprises, and we determined now is the right time to transition to our next phase of leadership.

Splunk's stock fell 16.7% in Monday morning trading and is on track for its worst single day decline since Dec. 3, 2020, when it lost 23.3%.

Splunk provided some preliminary financial results for its October quarter. The company expects to report about $660 million in revenue for the quarter while analysts tracked by FactSet were modeling $642 million and Splunk had issued guidance calling for $625 million to $650 million. The company expects to have an annual revenue ARR of $2.825 billion, while the FactSet consensus was for $2.817 billion. Splunk said that the ARR would be $2.8 billion to $2.825 billion.

The results speak to the fact that the business is in a better shape than the multiple implies, according to Evercore ISI analyst Kirk Materne, although we expect that bears could point out that Splunk didn't beat its ARR guidance by as much as some others outperformed. When Materne published his note, the stock was trading at a number of 9 times the enterprise value to calendar 2023 revenue expectations.

Materne argued that the CEO transition shouldn't come as a surprise to investors and viewed Splunk's Monday selloff as a buying opportunity.

In a market where investors are gravitating towards clean stories, Splunk is not a top of mind for most software investors right now, but we believe that the combination of a new CEO, a new investor and board member Silver Lake and solid fundamentals ARR up 37% in 3Q could lead to a significant re-rate over the next 6 -- 9 months.

Splunk shares have declined nearly 18% this year, as the S&P 500 SPX has gone up about 25%.