Splunk (SPLK) Update / Briefing Summary Company Overview - **Company**: Splunk - **Product**: Attack Analyzer Key Points and Arguments Industry Context - The security operations industry is facing challenges due to an evolving attack surface and increasing complexity of attacks, including credential phishing and malware [7][8][9] - Attackers are employing sophisticated evasion tactics, such as obfuscation and the use of QR codes, to bypass traditional security measures [9][10][20] Attack Analyzer Features - Attack Analyzer automates threat analysis of suspected malware and credential phishing, aiming to reduce manual analysis and improve investigation standards [18][19] - The tool integrates with various security platforms, allowing for seamless data submission and analysis [28][80] - It provides comprehensive threat analysis, including the ability to analyze complex attack chains and detect evasion methods [20][21][22] Operational Efficiency - The average time to resolve investigations is around three hours, and Attack Analyzer aims to reduce this dwell time significantly [16][17] - The tool is designed to enhance security architecture by automating threat analysis and providing intelligent responses [19][21] User Interaction and Education - Attack Analyzer is not intended to replace existing email gateways but to augment them by providing advanced analytics for suspicious emails [30][80] - The platform educates users throughout the analysis process, helping them understand the complexities of threats and improving their skills [42][67] Performance Metrics - The tool can process multiple submissions quickly, with a demonstration showing analysis of three URLs and five files completed in seven minutes [99] - It provides detailed reports, including MITRE ATT&CK framework techniques, to help users understand the nature of threats [100] Advanced Features - Attack Analyzer includes various detection engines, such as email analyzers, web analyzers, and static file analysis, to cover different aspects of threat detection [90][92] - The tool utilizes a range of IP addresses for analysis to avoid detection by attackers who may target corporate ranges [83] Integration and Customization - Attack Analyzer can integrate with third-party sandboxes and customize its detection engines to fit specific environments [96] - Users can submit feedback on false positives and negatives, allowing for continuous improvement of the tool [98] Other Important Content - The presentation emphasized the importance of understanding the attack landscape and the need for advanced tools to keep pace with evolving threats [8][9][10] - The discussion included a live demonstration of the Attack Analyzer's capabilities, showcasing its ability to handle complex attack scenarios effectively [26][27][28] This summary encapsulates the critical insights from the Splunk briefing, highlighting the challenges in the security industry, the innovative features of Attack Analyzer, and its role in enhancing operational efficiency and user education.

Group 1 - Cisco Systems, Inc. (NASDAQ: CSCO) shares have experienced a rise post-earnings but have since given back some gains, indicating volatility in stock performance [1] - The stock had previously been described as a "zombie," suggesting a lack of growth or momentum prior to recent developments [1] - The company has closed six double-digit return trades within a month, highlighting a strategy focused on high conviction and rapid return trades [1] Group 2 - The investment strategy promoted emphasizes a blended approach to trading and income, aimed at accelerating savings and retirement timelines [1] - There is an invitation for potential investors to try the service with a 20% discount, indicating a promotional effort to attract new clients [1]

Core Viewpoint - Cisco's acquisition of Splunk is a strategic move aimed at enhancing revenue growth and profitability margins, despite the high premium paid exceeding estimated revenue synergies, leading to a projected loss for shareholders [3][17]. Acquisition Details - Cisco completed the acquisition of Splunk for approximately $28 billion, paying $157 per share, which represents a 37% premium over Splunk's pre-acquisition share price of $114.60 [5][17]. - The total premium paid by Cisco amounts to $7.1 billion, while estimated revenue synergies from the acquisition are projected at $1.4 billion, resulting in a net loss of $5.74 billion for shareholders [5][15]. Profitability Analysis - Cisco's gross margins are expected to improve from 64.7% to 66.5% by 2029 due to Splunk's higher gross margins, which average around 75.7% [7][17]. - However, the combined operating margins are forecasted to decrease to 37% in 2025, reflecting Splunk's lower operating profit margins [8][9]. Revenue Growth Outlook - Cisco's revenue growth is projected to increase by 3.1% annually, while Splunk's revenue is expected to grow significantly, with a forecasted growth rate of 16.3% [13][17]. - The acquisition is anticipated to boost Cisco's overall revenue growth by 103% over the next five years, with combined revenues expected to grow moderately by 6.3% on average [11][15]. Segment Contribution - Splunk's revenue will primarily contribute to Cisco's Security segment, accounting for approximately 77% of its revenue, as it operates within the cybersecurity market focusing on vulnerability and security analytics [11][12]. - The integration of Splunk is expected to enhance Cisco's existing product offerings, particularly in the Extended Detection and Response (XDR) space, providing cross-selling opportunities to existing Cisco customers [11][15]. Financial Impact - The acquisition has significantly increased Cisco's debt from $9.45 billion to $32.24 billion, leading to higher interest payments and a shift from a net cash to a net debt position [16]. - Management has indicated that the interest impact from financing the acquisition is expected to be a headwind of approximately $350 million per quarter [16].

Core Viewpoint - The cautious sentiment surrounding AI stocks is growing, with Bank of America Global Research noting a decline in forward earnings growth estimates for AI stocks, contrasting with the generally rising EPS trends of the S&P 500 [3][4][5]. Company Analysis - Cisco has experienced mixed sell-side EPS revisions, with expectations for FY 2024 and 2025 per-share operating profits to dip, yet it is still viewed as a buy due to potential growth opportunities in AI [3][4]. - Cisco's shares have underperformed this year, leading to a P/E ratio that is currently at a 10% discount to its long-term average, making it a potentially attractive investment with a forward dividend yield of 3.4% [4][9]. - In Q3, Cisco reported a non-GAAP EPS of $0.88, exceeding estimates, with revenue of $12.7 billion, down 13% year-over-year, but still beating expectations by $70 million [6][9]. - The management forecasts Q4 revenue between $13.4 billion and $13.6 billion, slightly below consensus estimates, with non-GAAP EPS expected in the range of $0.84 to $0.86 [7][9]. - Cisco's total annualized recurring revenue reached $29.2 billion, bolstered by the acquisition of Splunk, and the company is expected to benefit from share gains in Ethernet-based AI buildouts [6][7]. Earnings Outlook - Analysts predict a 5% decline in EPS for the year just ended, with a similar contraction anticipated for the following year, but expect profit growth to resume by 2026 [9][10]. - Cisco's top line is expected to decline to $53.7 billion before experiencing a modest growth rate of 3% to 5% in FY 2025 and 2026 [9][10]. Valuation Metrics - Cisco's current valuation metrics indicate it is trading at a P/E of 11.8x for 2023, which is below its historical averages, suggesting it may be undervalued [10][11]. - The stock is also attractive from a free cash flow perspective, with a normalized free cash flow yield in the high single digits [11][12]. Technical Analysis - Despite attractive valuation, Cisco's technical chart shows bearish patterns, with key support around the $45 mark and potential resistance at the 50-day moving average [17][18]. - The stock has been underperforming compared to the S&P 500, but the RSI momentum gauge indicates that bearish sentiment is not firmly established [17][18]. Conclusion - Overall, Cisco presents a compelling risk/reward scenario with opportunities in AI and a low valuation, despite some technical challenges [19].

Core Viewpoint - Cisco Systems Inc has experienced a decline in stock performance, with a 9% drop since early January 2023, attributed to slowed product sales and reduced spending from large companies amid economic uncertainty [2][3] Financial Performance - In Q3 FY'24, Cisco's revenue decreased by nearly 13% year-over-year to $12.7 billion, with adjusted earnings at $0.88 per share [2] - The stock has shown minimal change, remaining around $45 since early January 2021, contrasting with a 45% increase in the S&P 500 over the same period [2] Competitive Landscape - Cisco's stock performance has lagged behind competitors, with returns of 42% in 2021, -25% in 2022, and 6% in 2023, while Arista Networks saw over a 300% increase during the same timeframe [3] - Cisco faces competition from smaller networking companies, impacting its growth potential [2] Future Outlook - Cisco's Q4 guidance suggests potential stabilization in demand, projecting sales between $53.6 billion and $53.8 billion for the year ending July, an increase from previous forecasts [3] - Gross margins improved to 65%, up 170 basis points year-over-year, driven by lower costs and better product mix [3] - The acquisition of Splunk aims to enhance Cisco's cybersecurity offerings and drive revenue synergies, with an annualized recurring revenue of $29.2 billion, including $4.2 billion from Splunk [3] Valuation - Cisco stock is considered undervalued, trading at approximately 13 times consensus earnings for FY'24, with a projected value of $55 per share, about 20% above the current market price [4] - The company's shift towards a recurring revenue model and focus on cybersecurity may support future growth [4]

Core Insights - Cisco and Splunk have launched a Unified Observability Experience that integrates their observability solutions, providing customers with a cohesive experience and laying the groundwork for future innovations [1][2][3] Integration and Innovations - The integration allows for full-stack observability across on-premises, hybrid, and multi-cloud environments, enabling organizations to achieve unified visibility and real-time analytics for improved detection and response [2][4] - New features include Splunk Log Observer Connect for Cisco AppDynamics, which enhances troubleshooting efficiency by combining log analytics with application performance monitoring [3][7] - The introduction of context-aware deep linking and single sign-on (SSO) credentials streamlines workflows and improves productivity by facilitating access to relevant data [6][7] AI and Advanced Features - Cisco has introduced an AI Assistant for AppDynamics that provides tailored guidance and insights, enhancing decision-making capabilities for users [4][10] - Splunk IT Service Intelligence (ITSI) has been upgraded with advanced AI and machine learning features, allowing IT teams to configure dynamic thresholds and optimize alerting processes [4][11] Availability and Future Plans - Key features such as Single Sign-On and Log Observer Connect will be generally available in Q3CY24, with other updates rolling out in mid-June 2024 [13]

Core Thesis - Cisco Systems is considered undervalued despite potential misses in earnings estimates for 2024-2026, with a fair price estimate of $63.63 and a future price of $92.46 for 2029, supporting a "strong-buy" rating [2][172]. Financial Performance - Cisco reported Q3 2024 earnings, beating EPS estimates by 7.3% and revenue by 5.5%, while increasing its 2024 revenue outlook to $53.6-53.8 billion, surpassing the previous estimate of $53.4 billion [2]. - The stock price has remained flat since the last analysis, decreasing by 0.13% [2]. Growth Strategy - Cisco's growth strategy focuses on enhancing networking equipment to meet the demands of AI data centers, which require improved routers and cables [3]. - The company aims to secure partnerships with key clients to support its networking improvements [3]. Market Position - Cisco holds a 15.32% market share in the networking sector, with competitors like Juniper Networks (2.80%), Arista Networks (3.19%), and Broadcom (4.70%) [5]. - The global networking segment of the data center market is projected to grow at a CAGR of 6.88%, reaching $256.10 billion by 2028 [7]. Addressable Market - Cisco's current addressable market is estimated at $411.76 billion, expected to grow to $682.41 billion by 2028/2029, reflecting a 13.14% annual growth rate [11]. - The IoT market is anticipated to grow from $1.38 billion in 2024 to $2.22 billion by 2028, with a CAGR of 12.57% [8]. Segment Performance - In FY 2023, Cisco's networking segment grew by 14.09%, while other segments like internet for the future and end-to-end security grew by 8.8% and 7.57%, respectively [12]. - The collaboration segment experienced a decline of -7.44% [12]. Valuation Insights - A DCF model indicates a fair price per share of $63.63, which is 28.1% above the current stock price of $49.67, with a future stock price of $92.46 suggesting a 14.4% annual return from 2024 to 2029 [19][167]. - The addition of Splunk is expected to contribute approximately $4.21 billion in new revenue, potentially increasing to $5.62 billion for FY2025 [172].

Merger Overview - Splunk Inc. has received unconditional antitrust approval from the EU for its $28 billion merger with Cisco Systems Inc., marking Cisco's largest deal to date [1] - The merger is part of Cisco's strategy to enhance its software business, particularly in the AI sector, while addressing the slowdown in post-pandemic demand [1] Regulatory Approval - The European Commission found no competition concerns regarding the merger, noting the minimal impact on competitive landscapes due to the presence of alternative players [1] - The commission emphasized that the merged entity would not have the ability to stifle competition, ensuring a level playing field in relevant markets [1] Strategic Benefits - The merger is expected to enhance Cisco's AI-driven service offerings by leveraging Splunk's expertise in advanced AI-powered solutions [2] - This strategic alignment reflects the growing convergence of cybersecurity and AI, with increasing demand for AI-driven security solutions as organizations navigate complex digital ecosystems [2] Innovation and Development - Splunk stands to benefit from Cisco's resources and global reach, facilitating accelerated research and development initiatives [3] - The collaboration is positioned to create synergistic solutions that address evolving cybersecurity challenges, heralding a new era of innovation in AI-driven cybersecurity solutions [3] Company Profiles - Splunk provides software solutions for real-time operational intelligence, enabling enterprises to analyze and act on machine and big data, with applications in security analytics, business analytics, and IT operations [4] - Splunk's stock has increased by 74.4% over the past year, outperforming the industry's growth of 66.9% [4]

Core Insights - Splunk Inc. reported strong fourth-quarter fiscal 2024 results, with both revenue and net income exceeding Zacks Consensus Estimates, driven by operational efficiency and growth in cloud services [1][2] Financial Performance - GAAP net income for the fourth quarter was $426.5 million or $2.28 per share, up from $268.8 million or $1.44 per share year-over-year, primarily due to top-line growth [2] - Non-GAAP net income for the quarter was $579.2 million or $3.08 per share, significantly surpassing the Zacks Consensus Estimate of $1.87 [2] - For fiscal 2024, GAAP earnings were $263.7 million or $1.52 per share, a recovery from a net loss of $277.9 million or $1.71 per share in fiscal 2023 [2] Revenue Growth - Total revenues for the fourth quarter increased to $1.49 billion from $1.25 billion in the prior year, exceeding the consensus estimate of $1.26 billion [3] - Fiscal 2024 revenues reached $4.22 billion, up from $3.65 billion in fiscal 2023, driven by demand in cloud services, cybersecurity, and observability [3] - Cloud services revenues rose to $503.4 million from $413.9 million year-over-year, reflecting increased demand [3] Annual Recurring Revenue (ARR) - Total ARR was $4.21 billion, representing a 15% year-over-year increase, with 899 customers having an ARR of over $1 million [4] - Cloud ARR increased by 23% year-over-year to $2.19 billion [4] Profitability Metrics - Gross profit for the fourth quarter increased to $1.26 billion from $1.05 billion in the prior-year quarter [5] - Non-GAAP gross margin from cloud services was reported at 74.5% [5] - Non-GAAP operating income was $710.7 million, up from $474.3 million in the prior-year period, with respective margins of 47.8% and 37.9% [5] Cash Flow and Liquidity - Splunk generated $1.01 billion in net cash from operating activities in fiscal 2024, compared to $449.6 million in fiscal 2023 [6] - As of January 31, 2024, the company had $1.64 billion in cash and cash equivalents and $3.11 billion in long-term debt [6]

Core Insights - Splunk reported revenue of $1.49 billion for the quarter ended January 2024, reflecting an 18.8% increase year-over-year [1] - The company's EPS was $3.08, up from $2.04 in the same quarter last year, indicating strong earnings growth [1] - Revenue exceeded the Zacks Consensus Estimate of $1.26 billion by 17.96%, and EPS surpassed the consensus estimate of $1.87 by 64.71% [1] Financial Metrics - Total Annual Recurring Revenue (ARR) reached $4.21 billion, slightly above the estimated $4.17 billion [2] - Cloud ARR was reported at $2.19 billion, slightly below the average estimate of $2.21 billion [2] - License revenues were $810.13 million, significantly higher than the estimated $586.92 million, marking a year-over-year increase of 20.9% [2] - Maintenance and services revenues totaled $172.64 million, exceeding the estimate of $163.87 million, with a year-over-year change of 3.3% [2] - Cloud services revenues were $503.38 million, close to the estimate of $503.83 million, showing a year-over-year increase of 21.6% [2] Stock Performance - Splunk shares have returned 1.2% over the past month, compared to a 3.8% increase in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3]