Splunk’s Big Data Lands Big IPO, But There’s Risk

Photograph by Dorling Kindersley

Shares of Splunk, a data mining company, nearly doubled on the first day of trading.

It’s a big day for big data.

Splunk more than doubled in its Nasdaq debut, giving the 8-year-old company a stock market value of about $3.3 billion. Splunk is among the pioneers of big-data technology, helping businesses take the massive amounts of information being created by mobile devices, Web applications, social networks and video and somehow make it useful.

After its first day of trading, Splunk is already valued at 27 times revenue over the past 12 months. That’s a big number. For comparison, Google is at 5 times sales, Salesforce.com at 9.6 and LinkedIn trades for 20 times sales.

Investors have at least one reason to be skeptical, as Splunk’s prospectus pointed out:

“If customers demand software that provides operational intelligence via a ‘Software-as-a-Service’ business model, our business could be adversely affected.”

Splunk understands the value of SaaS businesses, which deliver and host services in the cloud for use on demand instead of on dedicated servers in data centers. Splunk is a customer of companies such as Salesforce.com and NetSuite, and also provides its services to Salesforce. In short, SaaS is the new model for business software, and Splunk knows it.

But Splunk doesn’t currently have a commercial SaaS offering. The company provides a free trial version of its software that can be downloaded from the Web and then counts on enough people to become paying clients of its Splunk Enterprise product, which is typically hosted in an on-premise server.

Splunk is investing in a cloud-based product called Splunk Storm, because companies are increasingly moving that way. Still, the company is betting that when it comes to big data solutions, there will be less demand for SaaS products than in areas like customer relationship management and enterprise resource planning — the kinds of things that Salesforce and NetSuite build.

“We’ll have to keep innovating to stay ahead,” says John Connors, a Splunk board member and partner at Ignition Partners. “Hopefully, we’ll end up being able to deliver industry-leading products in both delivery methods.”

 

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