Splunk Stock: Why the Falling Retention Rates?

Macroeconomic headwinds wreak havoc on your portfolio, but they’re great for uncovering solutions that companies don’t really need. That’s why retention rates – both net and gross – are key metrics to watch for software-as-a-service (SaaS) companies. Don’t just assume they’ll immediately be impacted, as the decisions being made by companies now will become apparent when it’s time to renew contracts and they decide to consolidate vendors. During difficult times, industrial strength solutions that add value to organizations will offset declining growth by winning business from weaker competitors. That brings us to our annual checkup for Splunk (SPLK).

Splunk’s Net Retention Rate

One trick companies like to pull is focusing on year-over-year growth instead of comparing this quarter to last quarter. This deceptive practice makes investors think growth is still happening, when in fact it may have stalled. That’s why it’s important to provide all the data and let us decide if growth is occurring as expected. Splunk’s latest quarterly deck paints a rosy picture of success as they beat guidance across all measures and raised it for the full year. The number of customers paying them more than a million dollars a year – an indication of usage – continues to increase over time.

Bar chart showing the number of customers paying Splunk more than a million dollars a year - an indication of usage - continues to increase over time.

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