Splunk Inc. (NASDAQ: SPLK) will report its third-quarter 2020 earnings results on Thursday after the market closes. The results will be benefited from its transition to the subscription-based cloud model as well as the strong demand for its software.

The future lies in data and Splunk’s strategy is simple and powerful to bring data to everything. Data has a greater opportunity for Splunk that could drive future growth. The top line will be driven by software license and related maintenance fees, cloud services and other service fees.

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The company continues to rapidly shift its revenue mix from sales of perpetual licenses in favor of term licenses and cloud subscriptions as Splunk transition to a renewable model. This transition is expected to substantially close by the end of fiscal 2020. However, the operating cash flows are anticipated to be negatively impacted by the timing of its cash collections through at least the remainder of fiscal 2020.

Splunk plans to continue investing heavily in product development to deliver additional features and performance enhancements, deployment models and solutions that can address new end markets. This is for long-term growth. The sales and marketing organizations are likely to be expanded aggressively for selling its software both in the US and worldwide.

Analysts expect the company’s earnings to jump by 42.10% to $0.54 per share and revenue will climb by 26% to $604.24 million for the third quarter. The company has surprised investors by beating analysts’ expectations in all of the past four quarters. The majority of the analysts recommended a “buy” rating with an average price target of $151.02.

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For the second quarter, Splunk posted a narrower loss as the strong demand for its software that helps firms analyze internal data drove the top line higher by 33%. Software revenues improved by 46% year-over-year. The company experienced a faster transition to a renewable software model due to the strength of its cloud business.

For the third quarter, the company expects revenues of about $600 million and an adjusted operating margin of about 16%. For the full year 2019, the company predicts revenues of about $2.30 billion and an adjusted operating margin of about 14%. By the end of the year, Splunk expects that virtually all new software sales will be cloud or term license-based.

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