Machine data analytics specialist Splunk shares jumped more than 21% in pre-market trading Thursday, after Cisco Systems Inc. agreed to buy Splunk Inc. for $157 a share in cash in a deal valued at about $28 billion. The price is a 31% premium to Splunk’s previous closing price on Wednesday. The deal value represents around 10% of Cisco’s market value. The deal is CSCO’s biggest acquisition ever and a massive push into software and artificial intelligence-powered data analysis. The SPLK acquisition dwarves’ Cisco’s takeover of Scientific Atlanta for about $7 billion in 2006. Shares of Cisco fell 2.25% in New York, and Splunk surged 21%.
The deal is seen as both an artificial intelligence and software and data security play. Cisco clearly sees Splunk Inc.’ guidance showing still a growth engine in the company. The company is expected to significantly increase profitability in 2024, making it an attractive investment opportunity. The two companies had held talks in the past, but discussions fell apart last year, Bloomberg reported.
Splunk Inc NASDAQ: SPLK
- 144.82 ▲ +25.23 (+21.10%) today
- 52wk High 145.74 (Today)
- 52wk Low 65.00
Cisco Systems Inc NASDAQ: CSCO
- 53.26 ▼ -2.25 (-4.04%) today
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Earlier this year, Splunk announced a new line of AI offerings that it said would allow companies to detect and respond to anomalies in their data faster. The merger offers the companies’ AI products “substantial scale” and more visibility into data, they said in Thursday’s statement.
Cisco has been expanding its software and services business as it moves away from being dependent on its hallmark networking hardware where it generates the bulk of its revenue from. The move follows last month Cisco guidance of artificial intelligence and security technology moves.
Splunk, can analyze the health of an underlying network in data centers and is moving to cloud-based products, would help Cisco manage the complexity of the cloud.
The combination will bring together the companies’ AI and security capabilities to help make organizations “more resilient and secure in an AI-powered world,” Cisco Chief Executive Officer Chuck Robbins said in a blog post.
Highlights from Splunk’s earnings report were its beefing up its observability and incident response tools. The updates included new features for its Observability Cloud and Mission Control and the launch of a new service called Edge Processor.
Splunk specializes in producing software for monitoring and analyzing machine-generated machine data.
Machine data is data that is generated by apps and computers, and provides interesting and valuable data that can be used to drive business insights.
As a machine data platform, Splunk competes with the likes of Datadog, Inc. (DDOG).
Splunk focuses on operational intelligence and log management, specializing in analyzing machine-generated data. Its primary use cases include IT operations and business analytics.
The enhancements to Observability Cloud and Mission Control, alongside the introduction of Edge Processor, were aimed at bolstering resilience against cyberattacks and infrastructure issues. With a focus on improving on-call efficiency, increasing alert accuracy and expediting security threat response, the upgrades leverage machine learning and real-time data analysis, offering what Splunk says is a unified solution for enterprise cybersecurity.
Splunk also received an “In Process” status from the Federal Risk and Authorization Management Program and a “Pending” status from the State Risk and Authorization Management Program during the quarter. The designations are part of an effort by Splunk to secure authorization to offer attested versions of the Splunk Cloud Platform to governmental entities.
Splunk has undergone seismic changes in the past couple of years, changing both its chief executive and chief financial officer amid a growth slowdown, and laying off more than 300 workers earlier this year. The software company faces an uncertain environment for tech spending, especially for its banking customers, who have faced a crisis in 2023 that has trickled down to their preferred software providers such as Tenable Holdings Inc.
SPLK’s potential in SPLK’s data collection services as at the front of class. Machine data is outputted in an unstructured format that makes analysis nearly impossible without proper tools. SPLK offers solutions to extract insights out of complex data and does so with a pricing model that only charges its customers on the volume of data it processes. This pricing model has already displaced several competitors, as companies grow tired of surprise fees each month.
With macroeconomic growth concerns rising around the globe with central banks raising interest rates, worries about a further deceleration in IT spending are also intensifying. The fact that SPLK reaffirmed its guidance in this increasingly challenging climate encouraged investors.
Not subject to huge US dollar pressures
A big positive for Splunk is its relatively smaller international exposure, particularly to Europe, which is encountering fierce economic headwinds related to energy and currency pressures. The Soaring US dollar has been hurting many US companies exporting their services. In FY22 (ending Jan. 31), revenue in the U.S. accounted for nearly 70% of total revenue, and no country outside of the U.S. accounted for more than 10% of total revenue.
Woo Jin Ho, an analyst at Bloomberg Intelligence
Described the acquisition as “the Moby Dick” of deals that’s been talked about for quite some time. The acquisition could help Cisco find the recurring, subscription-based software revenues it has been seeking, Jin Ho said.
As networks become more complex, he said, it “is crucial for companies to understand what’s really going on.”
Vital Knowledge analysts at Vital Knowledge
Called the valuation “rich, but not extreme,” and noted that Cisco is buying a “reasonably healthy and thriving company.”
The accelerated shift to the cloud meant that cloud revenue growth leads the way. Shifting to the cloud came with significantly higher upfront infrastructure costs than traditional software due to the need to build cloud hosting capabilities.
Splunk Inc. (NASDAQ: SPLK) helps organizations ask questions, get answers, take actions and achieve business outcomes from their data. Organizations use market leading Splunk solutions with machine learning to monitor, investigate and act on all forms of business, IT, security, and Internet of Things data.
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