Hi all, still covering Elastic although I sold my position as describe previously.
The main reason for selling was related to the shift of the CEO to CTO (and also relocating from the US to Israel), as well as the general difficulty and friction of Elastics business. Further, they seem to talk about their security offerings a lot, but don’t show any real traction in the market.
This was the first earnings call with the new CEO.
Summary
It was another reasonable quarter. They beat previous guidance by 7%, expansion rates are strong at 129%, and a bit of an acceleration in >$100k ACV customer adds (+60, vs +50).
Overall, another ‘good’ quarter. Business as usual, and no real sense that this is a company thats making the most of its opportunity, and more importantly, has no real indication that it will improve significantly in the future.
They did state “Security now accounts for >25% of overall business” which is something I haven’t heard previously.
Management summary: “We’re happy with everything. Focus on cloud”. I don’t see any reason to invest again here. There don’t seem to be any catalysts for a change in expectations. I expect them to be around $240m for Q4, which again would be a reasonable result.
It’s all reasonable which is not what we look for here.
cheers
Greg
No position
My quick notes below:
ElasticCloud is growing strongly, although off a small ($40m Q3/21) base.
- Immense markets and growing
- ElasticCloud major driver of growth
- Drive for innovation continue to show in results
“Unified pricing model resonating”… Doesn’t seem to be resonating with DDOGs customers!
Moving to consumption model, a la DDOG and SNOW.
ElasticCloud growth a top priority. Expect >50% of revenue “in the next 3 years”. Greg- 3 years?!? thats a lifetime!
Canva new logo. Interesting. “Deepen security capabilities”… security green shoots?
Elastic 8.0 - vector search, NLP, simplified ElasticCloud on AWS onboarding. Lots of integrations.
Blah blah. Nothing of real interest here. Kind of uninspiring corporate speak to be honest. BroadwayDan should offer his services, they seem to desperately need them.
Hmm. Guide is disappointing again, despite their “less conservatism” declaration. One of the most annoying parts of ESTC is how poor they are at guidance. They state how strong things are, how wonderful the business is, the TAM is huge and growing… And then guide 31% after yoy growth of around 40% to 50%.
Interesting questions:
- Go to market - IMO their biggest issue. Blah “Loving what he sees in the Sales team…”. Ugh.
- Customer adds >$100k. Also falling higher within enterprise. More than half of those customers only one solution.
- “Great working engine (re: Sales)”
- RPO growth (22%) - Monthly cloud = no RPO. Burning down RPO with consumption model is a good thing.
- Customers have choice of monthly invoices on actual consumption, or annual commitment.
- AWS relation good. Removing ElasticSearch from AWS mentions.
- Why not ARR? Given billings grew at 35% early in year, but revenue grew faster now - Best to look at revenue.
- Why not seeing increase in customer adds, if cloud is less friction? Deal sizes going up yoy. Happy with results.
- Net new customers mostly on cloud.
- Security - Competitive positioning. Demand environment? “Very strong demand driver”. Security now accounts for >25% of overall business.
Finance
+43% revenue yoy. 44% revenue international.
$209.6m subscription revenue. ElasticCloud $80.4m.
Consumption business model (similar to SNOW). Revenue is recognised at consumption.
Revenue most representative of business growth.
Expect NER to remain around 130%.
Gross Margin 75.8%. ElasticCloud headwind to GM.
Sales and Marketing expansion.
Non-GAAP Operating Margin breakeven.
FCF: $15.8m - expect slight positive for FY.
Guide:
As expected. Increasing guidance (more than typical - less conservatism).
Revenue: $232,000 ($855m FY).