On Wednesday, I unleashed C.H.A.O.S.
If you missed it, I was hired by Tech & Innovation Daily’s Publisher, Robert Williams, specifically to unleash C.H.A.O.S.
The C.H.A.O.S. strategy comes straight from inside the belly of venture capital firms in Silicon Valley.
It’s a no-holds-barred, moneymaking strategy for scoring lightning-quick, mammoth gains in the technology sector.
Venture capital firms use adapted versions of C.H.A.O.S. to gauge whether or not a company represents a good investment.
You see, chaos is a beautiful thing.
Companies with products that wreak chaos force existing industries into extinction.
When’s the last time you used a rotary phone?
A cassette tape?
New companies came along and created unbridled chaos, killing those once-proud industries.
Along the way, they made fortunes for shareholders.
Give me 60 days, and I’ll prove to you that my C.H.A.O.S. strategy will give you opportunities to retire rich.
I’ve never released C.H.A.O.S. to the public before Wednesday.
Each letter in my C.H.A.O.S. strategy represents a specific metric. One that’s infinitely important to a company’s investment potential.
Individual letters are assigned a score ranging from one to 20, and then added together for a maximum possible score of 100.
Only seven companies in the history of C.H.A.O.S. have scored a 100.
Apple (AAPL) is one of them.
Here’s how this is going to work…
I’ll ONLY recommend buying companies that score 85 or better on the C.H.A.O.S. Meter.
These are the companies that will smash the existing world order so much… that incredible stock gains are inevitable.
The beauty of the C.H.A.O.S. system is that it carves through all the noise… all the hype… and, frankly, all the B.S. from the mainstream media.
It separates the contenders from the pretenders and gives you a crystal-clear, unequivocal investment verdict on the companies being analyzed.
I don’t deal in rumors. I don’t deal in speculation. I deal in solid facts and hard truth.
Like I said, just give me 60 days, and I’ll show you how C.H.A.O.S. can make you a fortune from the tech sector.
So let’s get to today’s candidate…
The Next Google?
Francois Meunier, an analyst at Morgan Stanley (MS), has gone out on a limb.
Talk about bold!
Simply put, the IoT is the idea that every object – mobile devices, machines, people, cars… basically everything – will be connected to the internet and able to communicate with us without depending on human-to-human or human-to-computer contact.
Why? Because computers are more efficient than humans.
The term was coined by MIT’s Kevin Ashton, who says: “If we had computers that knew everything – using data they gathered without any help from us – we’d be able to track and count everything and greatly reduce waste, loss and cost.”
In other words, it’s a massive market. ABI Research says over 30 billion devices will be connected to the IoT by 2020.
Enter, Splunk. Its software platforms are critical in storing and analyzing real-time digital data for virtually every sector. (More on this in a moment.)
The firm has been on our radar for several years – particularly after it IPO’d in 2012.
But is it really the next Google?
Keep in mind, Google is one of only seven companies to ever score a perfect 100 on the C.H.A.O.S. Meter. So Splunk has its work cut out!
Let’s see how it stacks up…
Splunk’s fundamentals are solid.
For example, its last quarterly report showed superb year-over-year revenue growth – up 52% to $302 million.
- Splunk boasts $897 million in cash…
- $74 million in operating cash flow…
- Zero debt.
Unfortunately, Splunk has yet to turn a profit. After two years of trading, it still has negative earnings, with profit margins in the red, too.
However, given its strong revenue growth, cash and vital role in its industry, Splunk is generally in good shape.
C.H.A.O.S. Meter: 14/20
~ High Impact
Despite being at a disadvantage in this category, Splunk still manages to rock the Richter scale in terms of its impact.
Because the company doesn’t have a consumer-based product or technology, it’s not going to light up the airwaves with a mind-blowing gadget.
But what it does have is high-impact, enterprise-based technology to safely store and analyze digital data.
And its huge impact is recognized by those who know the industry best – insiders.
For example, Splunk won SC Magazine’s prestigious annual award for Best Enterprise Security Solution in the United States, plus Best Security Solution in Europe in 2013.
Splunk also boasts these honors:
- Splunk Enterprise 6 won Best Cloud Management Product in the United Kingdom…
- Splunk was ranked eighth in Fast Company’s “World’s 10 Most Innovative Companies in Big Data”…
- Splunk Enterprise was named Best Big Data Analytics Solution in 2013 at the Government Security News’ Homeland Security Awards…
- Splunk won the Innovation Through Technology Excellence in Business Award from the San Francisco Chamber of Commerce…
So while Splunk might not light up the Twittersphere, it’s quietly making a high impact in its industry and performing a vital role that most people don’t know about.
But those who do know about Splunk refer to it in the same way as folks refer to Google.
You know how “Google it” has become the standard term used to look something up on the internet?
Well, people who use Splunk to mine through corporate data say they’re “splunking.” It’s a play on the term “spelunking” (i.e., to explore caves), which is how the company got its name.
This type of name branding is priceless for any company looking for a high impact in its industry.
C.H.A.O.S. Meter: 16/20
There’s no question that Splunk has soared in recent years. In fact, had I run Splunk through the C.H.A.O.S. system in 2012, it would’ve easily scored 85 or more. Why?
Because at the time, the Big Data trend was just ramping up – and Splunk was perfectly positioned. That’s reflected in its meteoric stock rise from the $30s to the mid $90s.
And guess what? Splunk is still perfectly positioned in Big Data. But it’s going to take more than that to move at a chaotic pace.
That’s where the IoT comes in…
The Internet of Things means billions in potential business for Splunk, because you can bet that businesses will need Splunk’s software to help analyze their data.
The point is this: While Splunk sits at the forefront of the IoT, the market is just beginning and will likely take three to five years to fully develop.
When it does, Splunk is primed for the next leg of its climb. But for now, the company’s main market is Big Data. And that’s certainly big enough to keep it busy!
Potential near-term catalysts include new software updates and its rumored partnership with Tableau Software (DATA). It’s a deal that could merge Tableau’s “drag-and-drop” data visualization tool with Splunk’s real-time Big Data analytics. The two powerhouses could form a pretty potent force.
C.H.A.O.S. Meter: 14/20
Splunk is a master at attracting new customers.
In just five years, its client base has grown from 450 to 7,000. And those clients come from virtually every major sector – governments, energy, healthcare, media, retail, telecom, transportation and many more.
Its software is also now used in 90 countries, with the company continuing to expand overseas. However, it faces challenges here, as its international sales team is substantially smaller than in the United States.
And non-U.S. sales contributed 23% of Splunk’s total revenue in 2013.
But because international expenses (travel, accommodation, legal costs, etc.) are high, it ratchets up the costs, and eats into the company’s ability to turn a profit.
Splunk also has issues at home. Namely, fierce competition in the software market from the likes of Google, Oracle (ORCL), Intel (INTC), Microsoft (MSFT), IBM (IBM), Hewlett-Packard (HPQ), VMware (VMW) and Adobe Systems (ADBE).
That means it’s up against firms with longer operating histories, more marketing and funding resources, better brand recognition, larger patent portfolios and broader global presence.
In order to compete, Splunk has had to ratchet up its expenses. In its fiscal 2013 report, Splunk said R&D expenses rose by 81%, while sales and marketing costs climbed by 72%.
While this at least shows that Splunk is investing in its business, strengthening its technology and expanding its customer base, it’s a primary driver behind the firm’s inability to turn a profit.
Also, because of the market saturation, consolidation presents challenges for Splunk, as it increases the likelihood of bidding wars for customers.
C.H.A.O.S. Meter: 13/20
We live in an age of vast digital data that’s growing larger by the hour.
And as wearable technology grows, we’ll amass even more data.
In fact, it’s estimated that the amount of data we create will double every 18 months. Indeed, by next year, the amount of digital information created and shared is expected to hit eight zettabytes, up from four zettabytes in 2013.
So it’s no surprise that the McKinsey Global Institute pegs Big Data as “the next frontier for innovation, competition and productivity.”
Initially, the problem was data storage. But today, companies are also looking for smarter ways to analyze it.
That means companies like Splunk are in prime position to capitalize on the growth opportunity with Big Data – a market that IDC says will hit $8.9 trillion by 2020.
I’ve mentioned that Splunk is already a major player in Big Data. And the IoT will be a straightforward market for the firm to scale into, as well. But because its current enterprise market is so niche, it might not have the clout to beat the bigger names in the space.
C.H.A.O.S. Meter: 15/20
The Verdict: Is Splunk a “chaos creator”? Well, it’s a terrific company – but it’s no Google. Its technology is vital, but it’s much more under the radar, and its industry is simply too crowded to give it that all-important “chaos factor.”
What I will say, however, is that it offers pretty compelling value right now. The stock is down 63% from its 52-week high, and the recent Nasdaq selloff means tech stocks in general are oversold at the moment. Like Neonode on Wednesday, you’ve got a very good “buy-on-the-dip” opportunity here.
Your eyes in the Pipeline,