I have been looking into starting a position in ESTC given it is in a large and growing market and has been on my watchlist for weeks.

This article peaked my recent interest in the setting of a great day for it on an otherwise down day.…

Things I love per numbers I have from earlier research:
Rev growth ~60%
Gross margin ~70%
Net dollar retention 130%
EV/R 13.66 (remarkably low for SaaS In current climate)
Gaining momentum - up 10% today including AH
Timing is likely good as well with Positive earnings upcoming based on DDOG and SPLK.

Curious what others think or if anyone else is long on it here!?


Hi doc,

There’s more than a few here following ESTC. Dreamerdad. Darthtaco and Bear are the most followed for this name as far as I can tell. And for good reason, check out their posts for the best reasoning I’ve seen here. At Proffringa has a great deep dive. I’ll include here one reason that might be holding down rev growth a little, from Proffringa:

The most recent Gartner Magic Quadrant for APM didn’t include Datadog, Splunk or Elastic. Gartner cites these as “Honorable Mentions”, with the clarification “This list is representative of vendors that address some APM use cases, but do not meet all of the functional and/or business requirements to be included in this research.” This may change in the upcoming 2020 report.

Gartner Magic Quadrant for APM, March 2019
The Forrester Wave Application and Service Monitoring report from April 2019 includes a few more players, but not Elastic.

Forrester Wave IASM Report, Q2 2019

In terms of what this means for Elastic, the lack of inclusion in these industry research reports is a bit of a concern. While I appreciate the reasoning, these reports are sometimes referenced by CIOs in making purchase decisions. The Elastic product marketing team should be lobbying for more consideration.

Happy hunting,



I highly recommend Software Stack Investing as well. Muji posted a great technical deep-dive on Elastic a while back too:…

I am actually the author of the Seeking Alpha article you referenced. Unlike Peter or Muji, I don’t come from a technical background so I tried to cover the most important aspects of their business without diving too deep into the tech. I agree that Elastic seems quite undervalued when compared to other SaaS and based on positive ER and commentary from others in their markets like Crowdstrike, Datadog, Splunk, etc. it seems that they should benefit greatly as well. Also, keep in mind they have a usage-based pricing model (their customers are probably seeing a lot of traffic right now!) and are cheaper than the best-of-breed solutions I’ve mentioned.

I know that many have sold out of Elastic because their profitability has not been trending in the right direction but I think that is soon about to change. Although I am not expecting positive EPS any time soon, S&M as a % of revenue has been trending down and I see R&D doing the same now that their Endgame has been incorporated in their security solution and they have a largely complete offering. Competition from AWS’ Open Distro and the worry that they’re directionless and expanding into too many markets at once should not be of concern, as I explained in my article, and I think a lower premium based on that is an opportunity.

I also agree with Peter that Datadog and Elastic both have their own merits. Observability, as we know, is a huge opportunity and I am placing my bets with Datadog and Elastic as they are the best positioned in my opinion. Elastic has been taking steps to monetize its platform better by having new features like Workplace Search or Endpoint Security under paid licenses and their SaaS offering is really taking off. Given they have a huge install base as a result of their open-source distribution model, they have a huge opportunity to upsell. Given the relatively low valuation, large market opportunity, secular tailwinds, and positive developments on the product side, I think that Elastic could prove to be a great investment now.



That link you posted is a really great article on ESTC. Very well written, I knew most of the information, but the way the author presented it all was very informative and well thought out. I have owned ESTC for about a year or so. Company seems to be performing well but the market does not give it much love.

I believe this is because ESTC is really trying to build something special as Shay the CEO is in love with his company, more than in love with the idea of making money. Look at employee count and revenue per employee. But as a business owner, hiring people is a bit of a chicken or the egg problem. Many times you cannot get to where you want to go without the addition of more employees. More employees cost more money and obviously decrease profitability.

I think ESTC is playing the really long game. Trying to build a very large company that will have a platform for many different types of software. IMO this type of company could pay off large, but patience will be needed along the way. Here’s to hoping next earnings report is the start of the rocket ship!


Hi Richard, I appreciate your posting here so I can ask you a question. I read in your article, referenced above published in Seeking Alpha, that 92% of ESTC total revenue was subscription based. My notes say that even as last as last quarter the percent of total revenue that was subscription based was 24%.

Where are you getting 92%?

So I rechecked my notes at those of Muji on 3/23/20 and it states Saas % of total revenue is 22%, sorry. Is there a subscription aspect of their business that is not Saas?

1 Like

Hi Will,

In their latest earnings release, they state that 92% of their revenue is subscription-based. Total subscription revenue came in at $104,198 and professional services form the rest at $8,983.…

Their self-managed offerings are also subscription-based and charged based on usage. With SaaS, Elastic just handles hosting for you and that can be charged both annually and monthly, around 10% of their total revs come from the monthly plan.


Here’s what I have:

Subcriptions % Revs					
	Q1	Q2	Q3	Q4	YR
2017	88.7%	89.9%	91.0%	91.4%	90.4%
2018	92.9%	93.9%	93.6%	93.1%	93.4%
2019	91.1%	91.9%	91.2%	91.3%	91.4%
2020	91.8%	90.7%	92.1%	0.0%	0.0%


Thanks Richard and Stocknovice, not at all the novice. For some reason I have difficulty getting my head around the fact that ESTC has Usage Based Pricing and that the self managed portion (75+%)of their business is also subscription.

Thanks again for explaining that.


Williams Dad.