In a press release Monday morning, Splunk (ticker: SPLK) said CEO Doug Merritt was stepping down and would be replaced on an interim basis by Graham Smith, Splunk chairman of the board. No reason was given for his exit, which comes seven months after its chief technology officer, Tim Tully, resigned.
“As the Board and I considered how to best position Splunk for long-term success and continued growth,” Merritt said in a press release, “we determined now is the right time to transition to our next phase of leadership—in particular, the Board is focused on identifying a leader with a proven track record of scaling operations and growing multi-billion dollar enterprises.”
Splunk also updated some of its financials, including its sales, which it said would come in at $660 million for the third quarter, ahead of estimates for $646.38 million.
“While we are sorry to see Mr. Merritt go, we see now as an appropriate time to transition into a new phase for the company as they continue to seek growth at scale and transition to the cloud,” writes Truist analyst Joel Fishbein Jr.
Maybe so, but Splunk stock had fallen 18% at 3:49 p.m. Monday, while the
had declined 0.1% and
Dow Jones Industrial Average
had dipped 0.2%.
Still, the only thing that might have been a surprise was the timing of the change, not the change itself. “We think the CEO transition will likely pressure shares near term as the headline of an interim CEO (Graham Smith / SPLK Chairman since 2019 / board member since 2011) adds a new layer of uncertainty to the story,” writes BTIG analyst Gray Powell, who has a Neutral rating on the stock. “That said, we do not think the news this morning is overly surprising given the multiple business model changes at SPLK over the last 2+ years and the recent (June ’21) investment by PE firm Silver Lake.”
Evercore’s Kirk Materne sees a buying opportunity. “While the CEO transition likely delays any preliminary view into CY22 until the C4Q results (early Mar.), we believe that the fundamentals of the business appear solid based on the preliminary F3Q results, and the risk/reward remains attractive into 2022,” Materne writes. “In a market where investors are gravitating towards ‘clean’ stories, Splunk is not top of mind for most software investors right now; however, we believe that the combination of a new CEO, a new investor and board member (Silver Lake), and solid fundamentals (ARR up 37% in 3Q) could lead to a material ‘re-rate’ over the next 6-9 months.”
First, it has to deal with the de-rate.
Write to Ben Levisohn at email@example.com