Analyst Note
| Malik Ahmed Khan |We are lowering our fair value estimate for Splunk to $120 from $175 primarily due to trimming of our long-term profitability forecasts, which, in retrospect, were too bullish. Part of our fair value cut is also informed by our belief that, in the near term, Splunk’s clients will rein in certain spending as they optimize costs in a challenging macroeconomic environment. At the same time, we'd be remiss not to note that despite the tough conditions in the near term, we continue to view Splunk as a strong business with enviable enterprise penetration (for example, the firm boasts more than 90% of Fortune 100 as its clients). Even after our fair value revision, we believe shares of Splunk are trading at a bargain for long-term investors willing to stomach the near-term volatility.