Hey everyone, after hearing about ESTC, the highly anticipated IPO, I decided to look into it.
I know there was a pretty comprehensive post a few days ago so I’ll try not to re-hash. But here are my thoughts.
What It Does/Products/Business Model
It’s a search engine of sorts. Think of it as Google but for applications. Some of the examples included in the prospectus were finding matches on Tinder and rides on Uber.
It’s open source but the company maintains a fairly tight grips on its source code, which differs from the incumbent, Solr. After doing a bunch of research of the difference between Solr and Elastic, it seems that Elastic is better for dynamic environments rather than static. In my mind, that means Elastic is more modern.
Elastic’s main product is called the ELK Stack, made of four components.
- Elasticsearch - the engine behind it
- Kibana - user interface
- Beats - send data from the edge (from devices)
- Logstash - the pipeline for Beats
Then other applications are built on top of these four, including APM and analytics. I’m not sure how this plays into NEWR and AYX. I would bet the APM and analytics are much less developed on Elastic. Would be interesting to see though.
Then there is the Elastic Cloud Enterprise (ECE), which is different from the Elastic Cloud. ECE is for specific, complex use cases whereas the latter is more like MDB’s Atlas, just a distribution channel.
After doing a quick calculation, EC is growing almost 200% YoY.
That brings us to the numbers.
Last quarter saw 79% growth to $56.6 million. Here are the last five quarters. In my opinion, not slowing all that much.
90% 74% 81% 82% 79%
Expansion rate was 142%. The 2016 customer cohort spent 1.8x after 2 years. This comes out to be around 134% for the last 8 quarters.
Gross margins are mid-70%'s. About 16% of revenues are from licenses, which have 98% gross margins so as the cloud distribution model continues to grow, gross margins will likely dip a little bit.
Losses are similar to MDB. Seems like the company is really spending to capture market share. The company’s big conferences are in Q4 so there is some seasonality there.
FCF actually swung positive last quarter.
Company added 500 customers last quarter, up to 5,500 now.
One thing that caught my eye is that the company has seen 350 million downloads of its open source software. That is a huge community. One of the biggest I’ve seen. Speaks to the potential I think.
Glassdoor rating was 4.3
95% approve of CEO
CEO is Shay Banon (40 years old)
Owns about 15% stake in stock
Company loves to start with developers and then work its way into higher-up decisions makers. Reminiscent of TWLO.
Really interesting company values. Would recommend digging to find them. Definitely not generic.
The IPO pricing jumped to 33-35. I believe only 62 million shares were authorized initially, so at the high end, that would be about $2.2 billion in market cap.
Numbers are better than MDB in my opinion and MDB has market cap of about $3.8 billion.
While MDB’s TAM is likely bigger, still don’t think the discrepancy should be that big.
I won’t be surprised to see ESTC hit $60 a share tomorrow. Possibly a ZS-like first day could be in the works.
If I can get my hands on a few shares, I will. Looks promising.
Will you take the plunge?..