Hi All,
After reading Greg’s post the other day, (http://discussion.fool.com/elastic-files-for-ipo-33999330.aspx)
I decided to take a closer look at Elastic which filed an S-1 the other day. Any SaaS company growing revenue at 80% certainly gets my attention!
Here’s a link to the filing:
https://www.sec.gov/Archives/edgar/data/1707753/000119312518…
The company has filed for a $100mln IPO, but I’m assuming that is only a placeholder amount for the moment. The filing only gives numbers/data from FY2018 and FY2017, as well as recent quarter ending July 2018 (as well as quarter end 2017)
What Elastic does:
Elastic is a search company.
Search is foundational to a wide variety of experiences. Elastic makes the power of search—the ability to instantly find relevant information and insights from large amounts of data—available for a diverse set of applications and use cases.
When you hail a ride home from work with Uber, Elastic helps power the systems that locate nearby riders and drivers. When you shop online at Walgreens, Elastic helps power finding the right products to add to your cart. When you look for a partner on Tinder, Elastic helps power the algorithms that guide you to a match. When you search across Adobe’s millions of assets, Elastic helps power finding the right photo, font, or color palette to complete your project. As Sprint operates its nationwide network of mobile subscribers, Elastic helps power the logging of billions of events per day to track and manage website performance issues and network outages. As SoftBank monitors the usage of thousands of servers across its entire IT environment, Elastic helps power the processing of terabytes of daily data in real time. When Indiana University welcomes a new student class, Elastic helps power the cybersecurity operations protecting thousands of devices and critical data across collaborating universities in the BigTen Security Operations Center. All of this is search.
Our origins are rooted in open source, which facilitates rapid adoption of our software and enables efficient distribution of our technology. Developers can download our software directly from our website for use in development and production environments. Since January 1, 2013, our products have been downloaded over 350 million times. These downloads include both free and paid products. Open source also fosters our vibrant community of developers who help improve our products and build on top of them. As of July 31, 2018, our community included over 100,000 Meetup members across 194 Meetup groups in 46 countries.
Industry Background Snippets
Search refers to rapidly obtaining relevant information and insights from large amounts of data. It is foundational to a wide variety of endeavors. Search is characterized by requirements relating to:
-the speed at which relevant information must be identified;
-the scale of input data that must be examined; and
-the relevance of results and the ability to analyze and summarize the data.
Users demanding more of applications. Over the last two decades, technology trends such as social networking, local interest directories, geospatial data, and mobile computing have revolutionized experiences on the Internet.
Growing need for data-driven insights across a broadening set of business functions. In recent years, demands for more intelligence and analytics have elevated to require real-time, actionable insights from various data sources to benefit multiple functions across an organization. Search is what makes that possible.
Increasing supply of data. The volume, velocity, variety, and value of information in today’s digital world are rapidly increasing. This flood of data represents an expanding opportunity for search to identify relevant and valuable information across an expanding variety of domains.
Products
The Elastic Stack The Elastic Stack and our solutions are designed to run on premises, in public or private clouds, or in hybrid environments.
Elasticsearch. Elasticsearch is the heart of the Elastic Stack. It is a distributed, real-time search and analytics engine and datastore for all types of data, including textual, numerical, geospatial, structured, and unstructured.
Kibana. Kibana is the user interface for the Elastic Stack. It is the visualization layer for data stored in Elasticsearch. It is also the management and configuration interface for all parts of the Elastic Stack.
Beats. Beats is the family of lightweight, single-purpose data shippers for sending data from edge machines to Elasticsearch or Logstash.
Logstash. Logstash is the dynamic data processing pipeline for ingesting data into Elasticsearch or other storage systems from a multitude of sources simultaneously.
Opportunity
Developers and organizations apply our technology to a wide variety of use cases representing what we estimate to be a total addressable market of $45 billion in 2018 according to information from IDC. Our total addressable market is driven by expansion in the use cases to which our technology is applied, as well as the following market drivers defined by IDC: digital transformation, availability of data, demand for predictive and prescriptive analytics, cloud infrastructure adoption, and increases in software and security-related spending.
The company arrives at the TAM based on four segments:
Search, content analytics, and cognitive/AI software ($8bln market)
IT operations management. ($9bln market)
Big data and analytics software ($23bln market)
Security analytics. ($5bln market)
Financial Highlights
Total Revenue
2017 88 mln
2018 160 mln (82% yoy)
Subscription Revenue
2017 80mln
2018 149mln
Billings:
2017 114.7
2018 205.7 (+80%)
Gross Profit
2017 68mln
2018 119mln
Loss from Operations (Non GAAP):
2017 (27) mln
2018 (32) mln
Deferred Revenue
$103mln as of July 2018
CFFO:
Has declined from $16mln to $21mln year over year, however they did squeeze out $5mln in CFFO in the July Quarter and were Free Cash Flow positive as well ($4.8mln)
Customers:
April 2017 2,800
April 2018 5,000
July 2018 5,500
The number of customers who represented greater than $100,000 in ACV was over 300, over 275, and over 150 as of July 31, 2018, April 30, 2018, and April 30, 2017, respectively.
Our Net Expansion Rate was 142% as of July 31, 2018 and was over 130% at the end of each of our last seven fiscal quarters.
Increasing adoption of Elastic Cloud.
Elastic Cloud, our family of SaaS products that includes Elasticsearch Service, Site Search Service, and App Search Service, is an important growth opportunity for our business. Organizations are increasingly looking for SaaS deployment alternatives with reduced administrative burdens. In some cases, open source users that have been self-managing deployments of the Elastic Stack subsequently become paying subscribers of Elastic Cloud. In fiscal 2017, fiscal 2018, and for the three months ended July 31, 2018, Elastic Cloud contributed 11%, 16% and 18% of our total revenue, respectively. We believe that offering a SaaS deployment alternative is important for achieving our long-term growth potential, and we expect Elastic Cloud’s contribution to our subscription revenue to increase over time.
Sorry if this was overly long. The company looks compelling to me, of course depending on the IPO pop it might be wildly overvalued, but the growth rates, the stellar net retention rate, and rapid increase in the customer count certainly may justify owning shares. We all know profits will be quite a way off as they will no doubt invest heavily in S&M and R&D. But with such a huge addressable TAM they dont really have a choice.
Best,
Matt
