Elastic (ESTC) Upcoming IPO

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

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When will it show up?

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They only filed the S-1 two days ago, but they are expected to debut in the fall, hopefully October but anything can happen between then and now.

Matt

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It does look very compelling.

When do you think this IPO might actually happen? How do you get an alert for the IPO date?

Hopefully in the fall. You can add the ticker symbol to your yahoo finance or seeking alpha portfolios so that you will catch any news updates.

Occasionally, your broker may participate in certain IPOs. I have Etrade, and they send alerts now and again for new IPOs.

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Hopefully in the fall. You can add the ticker symbol to your yahoo finance or seeking alpha portfolios so that you will catch any news updates.

Occasionally, your broker may participate in certain IPOs. I have Etrade, and they send alerts now and again for new IPOs.

Thanks!

Wow!

This could be as big as MDB! ELK stacks are HUGE in the cloud. Unless you’re using an existing SaaS service like Sumo Logic, you’re usually building your own ELK stacks. Or, you’re using a managed ELK stack service somewhere. It’s not the only game in town, but it’s one of the most well known. Everyone doing cloud stuff knows what ELK stacks are.


Paul - who will be waiting with baited breath…

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I bought into the Twilio IPO and certainly did not get price that insiders got but got what the public got. However, this IPO will be more in demand I think. Either put in an open market order and get what you get at the opening or wait until later in the day or in a few days weeks.

This IPO will not go unnoticed. But yes, I’d like shar s as well but at what price? I suppose since I own ZS perhaps anything south of $7.5 billion (15x revs). But then I won’t want it at that marketcap. We shall see what the market brings I guess.

Tinker

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Has anyone ever had any luck getting assign IPO shares from your broker? I never have.

Separately… let’s say the IPO issues and pops… what is the collective wisdom? Buy Day One… wait… wait how long?

I’ve registered with my broker to participate in several IPO’s in the past… but was never lucky enough to be allocated shares. And then when the IPO’s popped… I never really knew when to buy. I’ve watched all the cases… popped and kept running… popped and dropped… etc.

Advice. ESTC certainly looks interesting but it brought up these questions for me even before I do more research.

Thoughts please.

Mark

The only IPO I ever managed to get in on was FB, which proceeded to drop something like 50%. I had been ready to get Adaptive Insights back in May or June, but they were acquired just days before the IPO! Frustrating.

That being said, just because you cant in the ipo price it should not deter you. After all, relatively newer public companies like MDB, ZS, OKTA, PVTL et al, have all done well, and Ive not had the chance to participate.

Lastly, dont price anchor! If you have done the research and like the company, feel that they will do well, etc, at least buy a little bit! You can always add more later as your confidence grows.

Best,
Matt

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Fidelity says you have to have 100k minimum in your account to participate in the elastic ipo :frowning:

Fidelity says you have to have 100k minimum in your account to participate in the elastic ipo :frowning:

Even if you have 100K or more it is still very hard to get any shares. Only the big fish get to participate.

Andy

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There are other brokers involved also:

It plans to list on the NYSE under the symbol ESTC. Goldman Sachs, J.P. Morgan, Barclays, RBC Capital Markets, BofA Merrill Lynch, Citi, Jefferies and Canaccord Genuity are the joint bookrunners on the deal.

https://www.nasdaq.com/article/search-company-elastic-files-…

I have my biggest account at Merrill Lynch and maybe it’s big enough to get a positive answer. I’ll have to ask. Won’t hurt. :smiley:

The only IPO I’ve ever been part of was when Ford Motor spun off The Associates. 25% return overnight. Nice! But that one let any Ford employee participate. This will be different.

Rob
Rule Breaker / Market Pass Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.

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Also, it looks like the current CEO Shay Banon (co-founder and creator of the Elasticsearch product) owns 15% of shares and former CEO Steven Schuurman (co-founder and still on the board of directors) owns 21% of shares. Let me know if I am not reading the S-1 correctly.

Daniel

A little bit of relevant history…

Back in Feb 2016, Google announced it’s going to sunset one of it’s products “Google Search Appliance” (GSA). Its latest end-of-life date is March 2019. (It’s been pushed back from Dec 2018.)

Hence a lot of GSA customers have been looking for replacement and ElasticSearch/Elastic Cloud is one of the more popular replacement choices. (To see for yourself, type in “GSA to Elastic” in your search engine to see all the consultants trying to cash in on this.)

So, questions I am pondering:

  1. The 82% total revenue growth from 2017 to 2018 - what % is due to these migrations? The post above said “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.”

  2. More importantly, once most companies have completed their GSA migration (by March 2019), will we still see large growth of new customers?? I know they have high retention rate so the recurring revenue will be there but may not see 80%+ growth any more.

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