The technology market can move fast. Nothing shows that better than today's announcement that Cisco is buying Splunk in a $28 billion deal.
First, turn to 2020. Splunk was the market leader in what is called Security Information and Event Management (SIEM) and its shares were soaring. Two years later, in 2022, the company was struggling with its cloud transition, losing money and the share price had halved. At that time there was talk of talks with Cisco for this acquisition. But this agreement was cancelled.
The roller coaster climbs back up. Today, Splunk investors were reward when Cisco announced that it was buying the company for $157 per share – which is 30% higher than Splunk's stock price but almost below Splunk's all-time high of $223 in 30 September 2020.
What happened in between? It's only been two years, but a lot has changed. Let's take a look at the full story and what this means for Cisco going forward.
Splunk Cloud Splash Sputter
Like many other companies in technology, Splunk was riding high on the Covid boom in 2020 as Fortune 500 companies invested heavily in cybersecurity technology for remote work around the world as well as moving to the cloud.
Splunk benefited greatly from this investment, although it was never considered a major cloud player. However, it was in the early stages of converting its on-premises data technology and market-leading SIEM platform to a cloud service – including its product Splunk Observability Cloud. That ongoing process is tough, as many of Splunk's customers still use its SIEM as an on-premises installation.
Splunk hit some road bumps in the transition in late 2020 and early 2021, missing revenue estimates and forecasts that drove investors away and hurt its share price. Splunk was losing money. Part of the struggle is to shift its products from an on-premises software licensing model to a cloud-hosted software-as-a-service (SaaS) model, which generates annual recurring revenue (ARR). At the same time, customers were beginning to question the high cost of SIEM and were looking for alternatives. The market didn't feel as slam-dunk as it used to.
In 2022, the company shifted gears again. This shook up the management team and brought in technology veteran Gary Steele to turn the company around. Steele will now join Cisco's executive team after successfully stabilizing the company and recovering its share price.
Cisco Hunts ARR
Cisco first knocked on Splunk's door in 2022, when the deal was rumored – first reported by the Wall Street Journal and then said to be heating up, before Cisco CEO Chuck Robbins poured cold water on the deal. But at the time, Splunk's market capitalization was over $20 billion, representing a high cost for Cisco. Cisco waited. In retrospect, this seems like a smart move, as Splunk's massive decline made it possible to accept the current offer.
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