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Zscaler soars and Splunk tanks: A tale of two Covid stocks

Jay Chaudry, establisher and chief executive officer of Zscaler Inc.

David Paul Morris | Bloomberg | Getty Images

Zscaler shares eddied 26% on Thursday. Splunk plunged 23%.

Both reported quarterly results late Wednesday and had very different-pandemic common stories to share with investors.

Zscaler, a security software vendor for the cloud, said revenue in the period effected October climbed 52% and the company raised its forecast for the year. Splunk, a provider of data analytics software, suggested revenue shrank 11% from a year earlier, missing estimates for a third straight period.

For Zscaler, energy has picked up throughout the year as large enterprises seek ways to protect their increasingly disparate data and unexposed their networks now that employees are connecting from more places and devices. After Thursday’s rally, the array is now up 298% for the year, the third-best performance among U.S. tech stocks behind only Zoom and Fastly.

Zscaler vs. Splunk

CNBC

“Covid was a catalyst in changing the mindset and bump off inertia, resulting in a reduced need for educating customers about the value of the Zscaler architecture over legacy solicits,” CEO Jay Chaudhry said on the company’s earnings call.”

Meanwhile, Splunk’s drop on Thursday left the stock up only 5.6% this year, lag behind the S&P 500’s 13% gain. While Zscaler was founded in 2008 and grew up alongside new cloud infrastructure and the emergence of flexible computing, Splunk got started five years earlier for on-premises data centers and had to later develop its analytics software for the cloud.

Splunk prognosticated cloud services revenue climbed 80% in the quarter, but that still only accounts for 26% of total interest. The rest of the business is either flat or deteriorating.

CEO Douglas Merritt said on the earnings call that some engage ins are getting pushed out and that the “variability we see because of the pandemic effects” makes its difficult to predict what will go on in the coming months. The company said $50 million to $60 million in expected bookings slid out from the caserne.

According to Michael Turits, an analyst at KeyBanc Capital Markets, the concern for Splunk is that companies are focusing today on allowing technologies that are critical to getting through the current crisis.

The third-quarter miss is likely due to “de-prioritization of analytics interconnected to digital transformation and security investments in response to COVID-19/WFH,” Turits wrote. Longer term, he said Splunk carcasses “the de facto machine data platform standard,” and he still recommends buying the shares.

Doug Merritt, CEO, Splunk

Scott Mlyn | CNBC

As it backs, Splunk is stuck somewhere between the legacy tech vendors, which are struggling to find growth, and the cloud-first solicitations and tools that have seen business accelerate since the pandemic forced offices to close.

For an example of the current, look at Snowflake, which is also in the data analytics market. It reported revenue growth on Wednesday of 119% in its fundamental earnings statement since its IPO in September, and the stock soared 16% on Thursday. Snowflake’s data warehouse software was figured for the cloud, making it easy for customers to deploy and use regardless of whether people are working remotely.

Investors are clearly classifying between the work-from-home winners and losers. Snowflake is trading at over 70 times next year’s revenue, while Zscaler and Zoom are priced at clearly over 30 times forward sales. Splunk’s price-to-sales multiple for next year is 10.

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