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]

Core Insights - Splunk Inc reported strong financial results for its fourth quarter, exceeding market expectations, which led to an increase in stock price during extended hours trading [1] Financial Performance - Cloud revenue surged 26% year-on-year to $1.837 billion in Q4 [2] - Total revenue increased by 19% year-over-year to $1.486 billion, surpassing the consensus estimate of $1.27 billion [3] - Net income rose to $427 million from $269 million in the previous year, with per-share earnings climbing from $1.64 to $2.62 [3] - Adjusted EPS was reported at $2.28, exceeding the consensus of $1.96 [3] - Adjusted free cash flow reached $418 million, marking a 56% increase [3] Customer Metrics - Splunk ended Q4 with 899 customers, each generating over $1.0 million in annual recurring revenue, reflecting a 14% increase [3] Operational Insights - Operating expenses increased by 6.5% in Q4 [2] - The adjusted operating margin stood at 47.8% [2]

Financial Performance - Total Annual Recurring Revenue (ARR) increased by 15% to $4.2 billion, with Cloud ARR growing 23% to $2.186 billion[7]. - Total revenues for Q4 2024 reached $1.486 billion, up 19% year-over-year, while full-year revenues totaled $4.216 billion, a 15% increase[7]. - GAAP net income for Q4 was $427 million, and for the full year, it was $264 million, compared to a loss of $277.9 million in the previous year[7][16]. - Operating cash flow for the year exceeded $1 billion, with adjusted free cash flow increasing by 136% to $1.007 billion[3][7]. - Net income for the three months ended January 31, 2024, was $426,549, compared to a net income of $268,792 for the same period in 2023, representing a year-over-year increase of 58.7%[20]. - Total cash provided by operating activities for the fiscal year ended January 31, 2024, was $1,008,363, up from $449,630 in 2023, indicating a significant increase of 124.7%[29]. - Free cash flow (non-GAAP) for the three months ended January 31, 2024, was $416,777, compared to $268,621 in the same period of 2023, reflecting a growth of 55.2%[29]. - The company reported a significant increase in deferred revenue, with $611,917 for the three months ended January 31, 2024, compared to $489,026 in the same period of 2023, marking an increase of 25.1%[20]. - The company reported a net cash increase of $717,630 for the three months ended January 31, 2024, compared to a decrease of $142,342 in the same period of 2023[20]. Expenses and Margins - GAAP operating margin for Q4 was 29.1%, while non-GAAP operating margin was 47.8%[7]. - Operating income for the fiscal year ended January 31, 2024, was $239,504, with an operating margin of 5.7%[33]. - The company reported a gross margin of 79.8% for the cost of revenues in the fiscal year ended January 31, 2024[33]. - Cloud services gross margin improved to 74.5% for the three months ended January 31, 2024, compared to 71.4% in the previous quarter[30]. - Research and development expenses for the fiscal year ended January 31, 2024, totaled $943,933, with a reduction of $327,036 after adjustments[33]. - Sales and marketing expenses for the fiscal year ended January 31, 2024, were $1,671,102, showing a decrease of $253,216 after adjustments[33]. - General and administrative expenses were $454.531 million, with a net adjustment of $325.773 million[34]. - Stock-based compensation for the fiscal year ended January 31, 2024, was $786,824, slightly down from $789,138 in 2023, indicating a marginal decrease of 0.3%[20]. Strategic Initiatives - Splunk launched new security innovations, including Splunk Enterprise Security 7.3 and Splunk SOAR 6.2, enhancing security incident management[8]. - The pending acquisition by Cisco is expected to close in late Q1 or early Q2 2024, subject to regulatory approvals[5]. - The company expects continued growth in cloud services, with strategic investments planned for new product development and market expansion[30]. - Future outlook includes continued investment in cloud services and technology development[34]. - The company plans to expand its market presence through strategic acquisitions and partnerships[34]. Assets and Cash Flow - Splunk's total assets increased to $6.687 billion, up from $6.344 billion a year earlier[18]. - The company reported a significant increase in cash and cash equivalents, rising to $1.643 billion from $690.6 million year-over-year[18]. - The company incurred $23,354 in losses on facility exits for the three months ended January 31, 2024, compared to no losses reported in the same period of 2023[20]. - Cash paid for merger-related expenses was $1,132 for the three months ended January 31, 2024, with a total of $21,057 for the fiscal year[29]. - The company reported a net cash used in financing activities of $96,106 for the three months ended January 31, 2024, compared to $4,070 in the same period of 2023, showing a significant increase in cash outflow[29].

Core Insights - Splunk Inc. is expected to report fourth-quarter fiscal 2024 results on February 27, with a history of strong earnings surprises, including a 38.4% surprise in the last quarter and a trailing four-quarter average surprise of 99.3% [1] Group 1: Revenue Growth Factors - The company is anticipated to achieve higher year-over-year revenues due to strong customer engagement, large-scale cloud solution implementations, advanced AI capabilities, and aggressive acquisition strategies [1] - Splunk's software applications span security analytics, business analytics, and IT operations, benefiting from a growing user base, high net retention, competitive win rates, and increased orders [2] - The transition of organizations to cloud services enhances the relevance of Splunk's cloud offerings, particularly its Enterprise Security solutions, which centralize security management and improve handling of big data [2] Group 2: Technological Integration and AI Capabilities - Splunk's integration with various Amazon Web Services (AWS) allows organizations to analyze data generated by AWS resources, aiding in threat detection and response [3] - Continuous enhancements to Splunk's core platform with advanced AI capabilities enable enterprises to derive actionable insights, detect anomalies, and automate data analysis, reducing the burden on security and IT teams [3] Group 3: Financial Estimates - The Zacks Consensus Estimate for net sales in the Cloud Services segment is projected at $503.83 million, up from $413.93 million in the same quarter last year [4] - The License vertical is expected to contribute $586.92 million, down from $670 million reported in the prior year [4] - Total revenue for the December quarter is estimated at $1,255 million, showing growth from $1,251 million in the year-ago quarter, while adjusted income per share is expected to decrease to $1.87 from $2.04 [4] Group 4: Earnings Predictions - Current analysis indicates that Splunk is not predicted to beat earnings expectations for the fiscal fourth quarter, with an Earnings ESP of 0.00% and a Zacks Rank of 3 [5]

Group 1 - Splunk's stock closed at $154.50, with a slight increase of +0.05% from the previous day, outperforming the S&P 500's decline of 1.37% [1] - Over the past month, Splunk's shares have gained 1.16%, while the Computer and Technology sector and the S&P 500 have increased by 8.88% and 5.1%, respectively [1] - Analysts expect Splunk to report earnings of $1.87 per share on February 27, 2024, reflecting a year-over-year decline of 8.33%, with revenue projected at $1.25 billion, a 0.28% increase from the previous year [1] Group 2 - Recent modifications to analyst estimates for Splunk indicate evolving short-term business trends, with positive revisions reflecting analysts' confidence in the company's performance [2] - The Zacks Rank system, which ranges from 1 (Strong Buy) to 5 (Strong Sell), shows Splunk holding a Zacks Rank of 3 (Hold) with no changes in the consensus EPS estimate over the last 30 days [2] Group 3 - Splunk is currently trading at a Forward P/E ratio of 31.42, which is lower than the industry average of 33.08, suggesting a comparative discount [3] - The company has a PEG ratio of 1.06, while the industry average PEG ratio is 1.75, indicating favorable valuation metrics [3] - The Internet - Software industry, which includes Splunk, has a Zacks Industry Rank of 79, placing it in the top 32% of over 250 industries [3]

Core Insights - Splunk's stock closed at $153.34, showing a slight decline of -0.02% compared to the previous day, underperforming against the S&P 500's gain of 1.25% [1] - Over the past month, Splunk's shares increased by 0.8%, lagging behind the Computer and Technology sector's gain of 2.42% and the S&P 500's gain of 1.58% [1] - The upcoming earnings report is expected to show an EPS of $1.10, a significant decrease of 46.08% year-over-year, while revenue is projected at $1.25 billion, reflecting a modest increase of 0.28% [1] Analyst Estimates - Recent modifications to analyst estimates for Splunk indicate shifting business dynamics, with positive changes suggesting optimism about the company's profitability [2] - The Zacks Rank system, which evaluates these estimate changes, currently ranks Splunk at 3 (Hold), with a notable 13.29% rise in the Zacks Consensus EPS estimate over the past month [2] Valuation Metrics - Splunk's Forward P/E ratio stands at 35.85, which is higher than the industry average of 32.99 [3] - The company has a PEG ratio of 1.21, compared to the industry average PEG ratio of 1.65, indicating a more favorable growth expectation relative to its valuation [3] - The Internet - Software industry, to which Splunk belongs, has a Zacks Industry Rank of 76, placing it in the top 31% of over 250 industries [3]

Company Overview - Splunk (SPLK) closed at $153.36, with a slight increase of +0.04% from the previous day, outperforming the S&P 500's loss of 0.07% [1] - Over the past month, Splunk's shares have gained 0.82%, which is below the Computer and Technology sector's gain of 5.93% and the S&P 500's gain of 3.05% [1] Financial Performance - Splunk is expected to report an EPS of $1.87, reflecting an 8.33% decrease from the same quarter last year [1] - Revenue is projected to be $1.25 billion, indicating a 0.28% increase compared to the year-ago quarter [1] - For the entire fiscal year, earnings are projected at $4.28 per share and revenue at $3.96 billion, representing increases of +59.11% and +8.52% respectively from the prior year [2] Analyst Insights - Recent revisions to analyst forecasts for Splunk are important as they reflect short-term business trends, with positive changes indicating a favorable outlook on the company's health and profitability [2] - The Zacks Rank system rates Splunk as 1 (Strong Buy), which has historically outperformed with an average annual return of +25% since 1988 [3] Valuation Metrics - Splunk's Forward P/E ratio is currently at 35.83, which is a premium compared to the industry's average Forward P/E of 34.06 [3] - The company has a PEG ratio of 1.21, which is lower than the Internet - Software industry's average PEG ratio of 1.76 [3] Industry Context - The Internet - Software industry is part of the Computer and Technology sector, holding a Zacks Industry Rank of 53, placing it in the top 22% of over 250 industries [4] - The top 50% rated industries tend to outperform the bottom half by a factor of 2 to 1 [4]