I think the real keys here for the combined entity are not only integration, but innovation on top of it. The SIEM is holding up a little bit better, but the amount of competition in that space is just overall grueling and it’s going to get worse. You know, we’ve been catching a downward trend in deceleration and spending intentions for quite some time, particularly in what we call the analytics big data sector. Another thing that I think we should just talk about a little bit is the Splunk data. And overall the sentiment skewed positive among their client base. However, as we’re doing to dig into soon, there’s a lot of potential synergies here. One of the things that that concerns me is that $4 billion in ARR, it’s going to take Cisco a very long time to recoup that money. About the stock price, amazing that they were able to get $8 billion more. The point is Cisco, in many ways, represents a lifeline and avoids Splunk’s board having to do a heavy lift to remain independent.Įrik Bradley shared his thoughts on the acquisition and data as follows:įirst I want to mention that we called Cisco making a large acquisition in security in one of our predictions posts. But there appear to be more cracks in the armor. As we said in early 2022, competition and transition were not friends of Splunk. That has held up well until recently, indicating the stickiness of Splunk’s installed base. The other call-out on the chart above is the yellow line, which represents presence in the data set. The green bars represent the percent of Splunk customers growing spend while the red bars show the percent of those customers spending less. The bright red is churn. The chart above shows the breakdown of ETR’s proprietary Net Score methodology which is a measure of spending momentum (shown on the blue line). Splunk’s decelerating customer spending momentum was seen in the data Although some voices are vocal that this is a bad thing for Splunk, as we reported in our 2022 predictions post, the spending picture for Splunk was clearly deteriorating. The pain continued, but in 2023 we started to see light at the end of the tunnel as the transition started to show up on the income statement. You can see the pop at the end of this chart as Gary Steele’s handoff from interim CEO and Chairman Graham Smith (who succeeded Doug Merritt) took hold and Splunk got $8 billion more than Cisco’s prior offer, which was considered too low by Splunk’s board.Īnd that brings us to where we are today. The stock did get a bump when it was reported in February 2022 that Cisco was offering $20 billion to buy Splunk and around that time the board removed Doug Merritt as chief executive and brought in Gary Steele, a CEO with experience selling companies. At that point it became clear that the first disappointment would not be the last and the bears gained control. Investors retreated from a company with an income statement increasingly difficult to interpret and that was clearly in transition. Although this was common practice at the time during COVID, Splunk had been holding firm on its pre-COVID ARR guidance and that was a tactical error. Note Splunk’s performance through November 2020 in the lower right, outpacing the Nasdaq by almost 30 percentage points.īut then it had a bad miss on ARR when it announced earnings in early December 2020. As you can see, prior to December 2020 the Street was buying into the story. Let’s go back to 2019, the year Splunk acquired SignalFX Inc. in an effort to accelerate its pivot to the cloud, observability and a subscription model. Splunk’s bumpy journey to cloud and ARRīefore we get into the survey, let’s set the table with the recent rocky road Splunk had to travel to get here.Ībove we show a five-year chart of Splunk (blue line) and the Nasdaq (yellow line). In this special Breaking Analysis, we collaborate with Enterprise Technology Research’s Erik Bradley to share the results of ETR’s recent flash survey assessing joint customer perceptions and likely spending actions as a result of the Cisco acquisition of Splunk. Our initial research shows joint customers are generally positive on the deal, particularly with respect to Cisco’s expanded portfolio in security and observability - with, however, some caveats and concerns around pricing. But questions remained with respect to its growth prospects and competitiveness in the hot observability market.įor Cisco’s part, the acquisition brings more software, an additional $4 billion in annualized recurring revenue and a chance to grow Splunk’s business, particularly internationally. Splunk’s painful transition to a cloud and subscription pricing model was largely through the knothole, as seen by its margins and recent profit-and-loss performance. represents a good outcome for Splunk and a strategic growth opportunity for Cisco. Cisco Systems Inc.’s $28 billion acquisition of Splunk Inc.
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