Splunk: A Different Kind of Overvalued, Unprofitable Tech Company

This article is from the archive of our partner .

Amid all this talk of a social media and tech bubbles, one might think yesterday's bonanza debut of Splunk—which reached a $3 billion market valuation on its first day out—is just another indication of the impending tech bubble, but there's something different about this IPO. It really doesn't sound unlike all the other wildly overvalued companies going public and making money these days, at least not from the opening lines of today's Wall Street Journal article about Splunk's huge first day on the market.  "An unprofitable business-technology start-up with a funny name turned in the best stock debut this year on Thursday, underlining how investors' appetite in the latest tech boom now extends beyond hot Web companies like Facebook Inc," writes The Journal's Ben Worthen,  But maybe Splunk doesn't fit the narrative we've come to expect from a tech IPO.

Splunk's a technology company, but it's got nothing to do with social networking or coupons. Rather, the company which got its name from the term "Spelunking" is about "Big Data," what Worthen describes as the "next wave" in tech start-ups. "[Splunk] helps businesses organize and make sense of all the information they collect," writes Worthen. Working with companies like Bank of America and Comcast, Splunk uses data management and analytics products as it  "collects, monitors, indexes and analyzes the machine data generated by IT applications and infrastructure--physical, virtual and in the cloud," per the company's site. "This machine data is massive in scale and contains a definitive record of all transactions, systems, applications, user activities, security threats and fraudulent activity. This data is largely untapped; Splunk helps organizations unlock its value," it continues. So, unlike some others, Splunk has a product to sell, using it to help companies like automotive website Edmunds, for exmaple, which uses the software to organize all the data generated by people using its website. The company has a revenue source, it just hasn't made a profit because of general expenses, marketing, product development and hiring. 

Recommended Reading

The value of Splunk comes not only from that software, but it's also benefiting from the Groupon effect. "We’re the first mover in big data,” Godfrey Sullivan, Splunk’s chief executive, told DealBook's Evelyn Rusli. It's the first to look at all that data we the consumers generate as we click at our computers all day long and turn it into something company's can use to make money off of us. Worthen mentions other big-name companies like IBM pushing similar products, but "Splunk is widely seen as the first pure play to go public," he writes. Being first has its merits. 

But, given the market hype this company has drawn, we can expect others will enter the space soon, and that's when we'll see the real bubble. "By the end of this calendar year, the general public will clearly understand that this big enterprise wave is beginning," John Connors, a venture capitalist at Ignition Partners and a Splunk board member, told The Journal. For at least a year, people who know about these things, have predicted this coming wave, actually. It's coming. Get ready. 

Just because Splunk has a different business model, however, doesn't mean it's not part of the larger tech bubble scariness. As we learned from our social media bubble speak, bubbles happen when things get overvalued, like, say, Facebook's $1 billion purchase of Instagram. Is Splunk and Big Data the next overhyped, overvalued tech thing? It certainly has that potential as Quentin Hardy explains over at Bits Blogs. "Technologists build or discover something great, like railroads or radio or the Internet. The change is so important, often world-changing, that it is hard to value, so people overshoot toward the infinite," he explains, in the context of Big Data. "When it turns out to be merely huge," -- as Big Data might -- "there is a crash, in railroad bonds, or RCA stock, or Pets.com."

Then again, "Perhaps Big Data is next, on its way to changing the world," he writes. That's the hope, at least. 

This article is from the archive of our partner The Wire.