by Travis Johnson, Stock Gumshoe | October 1, 2012 12:44 pm
I’m tempted to buy some puts in Splunk (SPLK)[1] following the presentation by Zack Buckley[2] late this morning — he brought the shares down by 5%, but his brief look at the business model and the growth prospects, and the accelerated revenue recognition that makes the business look better than it is, point to some substantial concerns with everyone’s favorite data-management IPO[3].
Still, shorting stocks that are growing revenue at 50-80% is really, really hard and can quickly become painful — had some thoughts about buying puts because they’ve already had big insider selling and they have a lockup expiration in two weeks that could bring more selling in to play, but I’ll have to look over the company a bit more. I’d heard all the good things about their growth rate but have never read their filings … looks like Zack is making a play to be David Einhorn[4], Jr. and I’ve seen short ideas being among the most interesting so far this year, but his presentation was far less substantive and persuasive than Einhorn’s have been over the past two years so I’ll have to research it more on my own.
Quick note on it from Barron’s here[5]. And yes, CNBC is roaming the lounge outside the conference and reporting on most of the sound bite-worthy pronouncements, but they have for some reason not invited me on the set. Out of respect for my personal need for privacy, no doubt. Which I appreciate.
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For those who asked: No, Zack Buckley is not much of a “name” yet — he’s had a good return for a couple years but his fund is very new.
He seems intelligent, he was self-effacing and his pitch began with his mistakes. His story began with the realization that the Chinese stocks he had been buying as cheap might be frauds, something he learned from negative comments at a Value Investing Congress a couple years ago — so instead of fretting like me and just deciding not to buy any of them any more, he went to China for a couple months, visited the companies, realized they really were crap, and sold most of them short.
His basic pitch was that this is “1999 all over again” with a huge overvaluation for Splunk based on the enthusiasm for the “big data” hype — though he didn’t use that word. Essentially, the story is that for most of their business they’re competing either with Oracle, IBM and EMC or with VC startups who are the “next Splunk” coming down the pike, and they have little to no differentiation in their product. I don’t know enough to tell you whether or not he’s right on the product side, and their sales growth is remarkable, but the rest of their valuation metrics do look pretty lousy.