ESTC Lock-up period question

Investment Analysis Clubs Saul’s Investing Discussions
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https://seekingalpha.com/news/3440389-elastic-minus-3-percen…

I sort of understand the concept of the “lock-up” period and the significance of a bunch of shares hitting the market on/about March 6. Presumably, this is what has caused Elastic to drop about 15%. If i remember correctly, there is an even bigger lump coming due shortly.

If what makes stocks go down in price is the act of people selling shares, is it prudent to sell (at a loss) and attempt to buy back at a lower price after the coming presumed wave of selling is done? (Or just grit one’s teeth and repeat the mantra that "soon the pain will stop)

Jeff

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Or sell it and buy another that is not painful.

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Lockup is a temporary phenomenon and there is no guarantee that the share price will drop or move in any significant way due to that event.

If you are confident in ESTC and think the company is a good investment, maybe the best course is to hold and add if there is any opportunity presented by the lockup expiration. The recent ESTC pull back has been on going since well before March 6. It ran up big after the IPO. It’s not unusual in the slightest even absent a lockup expiration.

All my opinion of course.

Darth

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If i remember correctly, there is an even bigger lump coming due shortly.

The rest of the unlock occurs 4/2/2019.

If the stock continues this weakness going into the event, it turn out to be a non-event. I have seen that happen before.

Rob

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I sort of understand the concept of the “lock-up” period and the significance of a bunch of shares hitting the market on/about March 6. Presumably, this is what has caused Elastic to drop about 15%. If i remember correctly, there is an even bigger lump coming due shortly.

Answers to these kind of questions are most often but answered by history and probabilities.

As Rob said the major lockup release is around April 2…good that is wasn’t April 1st!

So what do the probabilities say?..not what you might have thought…often the price decline occurs leading into the release date and only minor drops on that actual day or the few after. This is likely because present holders aren’t gonna sit around and watch their stock get slammed when they can just buy right after.

For more see here including the relevant links:

https://discussion.fool.com/previous-lockups-have-always-seemed-…

What does history tell is about stock lockups expirations:

https://seekingalpha.com/article/326032-dissecting-lock-up-d……

Note there are several older academic studies there. Look over Pandora as an illustrative case…what did we see??

1) The stock price tends to fall BEFORE the lockup actually occurred.
2) Stock price fell 30% from its high
3) Further permanent stock price fall tends to be around 3% after lockup

Look a few others in that article:

UBNT fell 60% over next few months
GRPN fell 50% over next few months
ZNGA fell 45% over next few months

Again these issue are about probabilities rather than certainties so the stock price could be affected otherwise by unrelated external events such as the AWS issue, etc. The lockup issue may be null by these other issues.

Hope that helps.

Best:
Duma

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The rest of the unlock occurs 4/2/2019.

Partially correct. “Insiders” won’t be able to do so until early June…right after next ER. What I do not know is how many of the remaining 75% of locked-up shares are owned by Insiders.

the below is stolen from an earlier Darth post:

https://ir.elastic.co/Cache/1500117805.PDF?O=PDF&T=&……

Lock-Up Release Date and Extension
Pursuant to the lock-up agreements executed in connection with the Company’s initial public offering, provided the closing price of Elastic’s ordinary shares on March 4, 2019 is at least 33% greater than the IPO price of Elastic’s ordinary shares, 25% of the shares subject to the lock-up agreements will be released from lock-up, and such shares will become eligible for immediate sale in the public market, at the open of trading on March 6, 2019, subject to trading limitations on shares held by affiliates of Elastic and applicable securities laws, restrictions under Elastic’s insider trading policy and continued vesting of any unvested equity awards as of such date.

The lock-up restrictions with respect to all remaining shares are scheduled to expire after the close of the market on April 2, 2019. However, since the Company will be in its standard quarterly trading blackout period on that date, insiders will be restricted from selling shares until the start of the third trading day following the end of this blackout period. The Company expects to announce its earnings results for its fiscal year ending April 30, 2019 in early June 2019.

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lock up stock up, not real interested. More interested in how Elastic will make money. Unlike Mongo Elastic’s SaaS offering is only growing at the rate of revenue growth. If I recall correctly their SaaS offering grew 68% this last quarter at low eight digit in revenues. In comparison MongoDB’s SaaS offering was growing at 300% at a bit higher revenue rate.

This means either that the SaaS offering is not relatively that popular or users are far more willing to use Elastic on their own premises. This makes sense given the petabytes of data that Elastic runs through. Closer to the data is better in such circumstances, and given the volume of data it may be more cost-effective to keep it on premise as well.

Elastic is clearly the dominant big data search solution. compared to any other open source solution it is like intel vs. everything else in marketshare and popularity.

Looking at reviews, Elasticsearch on the Stack website had 60x more reviews than Amazon’s AWS Elastic product. 60x!

So how does Elastic search print money and dominate with these attributes moving forward? I have my thoughts but prefer to hear yours to start with.

Tinker

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I suspect that Saul would like to see other discussions here so we may want to end this one soon… Lockup expirations may or may not create opportunities to purchase shares at slightly depressed price but in the long term they are just a blip on the radar… Trade at your own risk

Personally, I find lockups interesting because the talking heads on TV sometimes push the potential of companies just before their lockup expiration (for example, NIO on 60 minutes) as if they’ve been paid to hold up the price. I truly believe that for a short time, (perhaps two weeks before and three to six weeks after), that most stocks will be fairly volatile due to an expiration event and that savvy investors ‘may’ find an excellent opportunity to purchase good companies at a reduced price.

This month’s lockup expiration for Elastic is a fairly typical example of a stock dropping prior to the lockup expiration and dropping a little more on the day of the lockup expiration (although only 25% of the locked shares became tradable this month). The next event may be slightly different because many of the insiders will have already had a chance to take some profits; assuming they have faith in their company they should be less likely to take additional profits immediately after their next block becomes tradable (of course, anything is possible).

Re: “The rest of the unlock occurs 4/2/2019. If the stock continues this weakness going into the event, it turn out to be a non-event. I have seen that happen before.”

April 2nd could be a non event but not necessarily for the reason you think. According to the company’s third quarter press release: “The lock-up restrictions with respect to all remaining shares are scheduled to expire after the close of the market on April 2, 2019. However, since the Company will be in its standard quarterly trading blackout period on that date, insiders will be restricted from selling shares until the start of the third trading day following the end of this blackout period.”
Source: https://finance.yahoo.com/news/elastic-n-v-reports-strong-21…

I’m not sure if that implies that the new block won’t be tradable until April 5th or if it means that the new block won’t become tradable until the third day after their next earnings date. Perhaps someone here with more knowledge on quarterly blackouts will let us know.

Re: “So what do the probabilities say?..not what you might have thought…often the price decline occurs leading into the release date and only minor drops on that actual day or the few after.M/B> This is likely because present holders aren’t gonna sit around and watch their stock get slammed when they can just buy right after.”

This matches with most everything I’ve read on the topic.

Thank you to Saul for allowing the discussions on lockup expiration to continue; again, I would advise folks to not create too many threads on this subject as we’ve already had part of this conversation before:
https://discussion.fool.com/estc-25-lockup-expires-tomorrow-3414…

If someone here wants to really dig into the events surrounding lockup expirations the following paper examines thousands of them (note that all figures and charts are at the end so you might want to open two browser windows).
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.466…

Duma gave links to a number of additional articles… Personally I like the following one because it takes a look at some of our favorite names including Okta and Alteryx.
https://seekingalpha.com/article/4108976-lockup-expiry-seaso…

Going beyond the recent lockup expiration, what concerned me a little bit about Elastic current price is how it has been trading this week. On Monday the market was showing a lot of strength and Elastic closed down a little (less than a dollar) but someone dumped shares in after hours causing the stock to open much lower on Tuesday. Today the market is showing signs of strength again and Elastic is down again. I’m not sure why anyone would dump in after hours unless they were expecting some negative news. I haven’t found some but I keep watching.

By the way, for those who like to see what the insiders are up to you can always look at the SEC filings on edgar. Here are some of the recent reports:

Kevin Kluge - SVP of Engineering
http://archive.fast-edgar.com//20190311/AIZN3222Z22S72ZZ2E2M…

Steven Schuurman - Director
http://archive.fast-edgar.com//20190308/AWZXTG22Z22SAZZZ2429…

Hmm, that’s about it… so far

Take care,

VR_Robear

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Hi, VR_Robear-
Nice writeup. Thanks.
I just want to follow up on the two questions you raised in your article.

  1. The ending date of the block out period for the other 75% insider shares. “I’m not sure if that implies that the new block won’t be tradable until April 5th or if it means that the new block won’t become tradable until the third day after their next earnings date.” My understanding is that it’s the later, i.e., three days after the early June ER, if I read the sentences correctly. The quarterly blockout period is volunteering and not required by SEC. However, this does put the standard quarterly blockout period from as early as 4/3/2019 to early June, lasting two months. I could not find out how ESTC sets its quarterly blockout period.

  2. " …what concerned me a little bit about Elastic current price is how it has been trading this week…". I think this is caused by AMZN. See this article: “Amazon steps up its open-source game, and Elastic stock falls as a result”.
    https://finance.yahoo.com/m/30c3c1a3-26ed-3f3f-8989-45a9a133…

When it rains, it pours. Hopefully, the negativity on the ESTC will be behind us very soon.

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