Splunk notched one of Silicon Valley's best-performing stock debuts of 2012. Now it's started the new year on a tear.

Since Bloomberg News reported Jan. 11 that the San Francisco big-data company was a takeover target of both Oracle (ORCL) and IBM, Splunk's share price has jumped 11 percent.

Chief Executive Godfrey Sullivan, in an email to this newspaper, said he couldn't comment on "market rumors," adding: "I'll have to defer any comments for now."

But Trip Chowdhry, an analyst with Global Equities Research in Redwood Shores who follows Oracle, said both tech giants would do well to have Splunk in their sights.

Godfrey Sullivan is CEO of Splunk, a "big data" startup that helps customers from Facebook to the U.S. Army analyze their computerized
Godfrey Sullivan is CEO of Splunk, a "big data" startup that helps customers from Facebook to the U.S. Army analyze their computerized information in real-time. (courtesy of Splunk)

"What Google (GOOG) is for Web searches," he said, "Splunk is for machine-generated data."

Modern businesses generate massive amounts of such data: Web page addresses, radio-frequency ID tags, information from GPS satellites and the like. While all that activity is captured in computerized log files, it doesn't fall neatly into the rows and columns of relational databases.

Splunk was founded in 2003 to index such "unstructured" data and make it searchable. And when a data error is found and fixed, a client can save those troubleshooting searches to track ongoing activity, in hopes of preventing the same problems from recurring.


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Cellphone carriers, for example, use Splunk to monitor which towers are the busiest and ward off potential outages. Other clients include Major League Baseball, Cisco Systems (CSCO) and many federal agencies.

"When you think about cloud infrastructure, there's a lot of machine-to-machine interaction, and a lot of logs generated," Chowdhry said. "The ability to sort through that and solve problems before they occur is a differentiator."

The question, he added, is how much might a bigger company be willing to pay for it?

Chowdhry thinks Splunk could command a premium of at least 25 percent above its current share price -- and if multiple bidders indeed are at work, that premium could top 40 percent.

The stock, which is traded on the Nasdaq exchange under the symbol SPLK, closed Friday at $33.15, giving the company a market capitalization of $3.3 billion.

Given that valuation, Gartner analyst Bill Hostmann agreed that a sale of Splunk would fetch a hefty price, though he added that it seemed premature to sell the company, given Sullivan's experience growing and running companies. Before taking Splunk's reins in 2008, Sullivan was CEO of Santa Clara-based Hyperion Solutions.

"But if the price is right, I would guess it's not out of the question," Hostmann said.

In its most recent quarter, Splunk reported revenue of $52 million, up 67 percent from the year-earlier period. It has yet to earn a profit, however.

Chowdhry also mentioned Dell and Hewlett-Packard (HPQ) as possible suitors, though he questioned whether Splunk would welcome an acquisition, given both companies' recent travails.

"I think Oracle and IBM are probably the right candidates, because both have an urgent need for this kind of technology," he said.

One other data point to consider: Sullivan sold Hyperion Solutions for $3.3 billion -- to Oracle.

Contact Peter Delevett at 408-271-3638. Follow him at Twitter.com/mercwiretap.

splunk

What it does: Helps clients ranging from Pixar to the U.S. Postal Service manage their computer-generated data.
Founded: 2003
Headquartered: San Francisco
Employees: 600-plus