Splunk: A Growing Company Tackles Big Data

According to IDC, the worldwide volume of digital data will grow 45% annually from 1.8 trillion gigabytes in 2011 to 7.9 trillion gigabytes by the year 2015. In another report, IDC estimated that the market for worldwide Big Data technology and services will grow at 40% annually, from $3.2 billion in 2010 to $16.9 billion in 2015. The growth in Big Data technologies is nearly seven times faster than the growth projected for the information and communications technology market. Recently, a Big Data analytics service provider, Splunk Inc., filed their S-1 for a $125 million IPO.

Splunk’s Financials
San Francisco–based Splunk was founded in 2004 with the mission to make machine-created data “accessible, usable and valuable to everyone.” IDC estimates that 90% of the digital data created today is created by machines, which includes servers, networks, mobile devices, applications, and  websites.

Splunk focuses on converting this machine-generated data into analytical information that helps organizations gain insight into their operations and market trends. Their flagship product, Splunk Enterprise, collects, monitors, indexes, and analyzes the machine data generated by physical, virtual, and cloud-based applications and infrastructure. Other products include Splunkbase and Splunk Answers, which are their online user communities that provide an infrastructure where their customers can share apps and exchange ideas and information.

Today, Splunk claims to have more than 3,300 customers spread across more than 75 countries. Their list of customers includes many Fortune 100 players and boasts of names such as Bank of America, Comcast, Salesforce.com, and Zynga. Splunk earns revenues through licensing fees charged to their customers based on their estimated indexing capacity needs.

They saw revenues grow from $18.2 million in 2009 to $35.0 million in 2010. For the year ended January 2011, revenues grew to $66.2 million. Their net loss has been narrowing and fell from $14.8 million in 2009 to $7.5 million in 2010 to $3.8 million last year. For the nine-month period ended October 2011, licensing revenues grew 72% over the year to $55.49 million and maintenance revenues nearly doubled to $22.27 million.

Splunk has been investing heavily in marketing their products. During the nine-month period ended October 2011, they reported marketing expenses of $48.34 million compared with 2011 fiscal’s marketing expenses of $39.91 million. The increased spending has hurt their margins as losses grew to $9.72 million for the three quarters ended October 2011.

To date, Splunk has received $40 million in venture funding from investors, which include August Capital, JK&B Capital, Ignition Partners, and Sevin Rosen Funds. Earlier this year, Splunk filed their S-1 to raise $125 million by trading under the ticker SPLK. The IPO is expected to value the company at $1 billion.

Splunk’s Product Enhancement
Splunk is recognized for being able to signify Big Data into terms that do not necessarily require a “data scientist” to understand. But, beyond machine-generated data, Splunk is also venturing into simplifying Hadoop resident data. Last quarter, they tied up with Apache to integrate their product so that users will be able to leverage the real-time search, analysis, and visualization capabilities that Splunk offers for their Hadoop-based data.

Analysts believe that in the past, both Oracle and Dell were looking to buy Splunk, a move that the company managed to avoid. Gartner estimates that Splunk’s market opportunity is worth $32 billion. At their current revenue rate, Splunk does not even have 1% of this market. Surely there is potential for growth. Splunk plans to use their IPO funds to invest in research and development on their technology solutions. They will also focus on developing solutions in adjacent markets and platforms such as the enhancement of Splunk Storm, their cloud-based service.