Saul,
I have recently taken a position in ESTC again. A couple of things on this topic from recent earnings call that may help explain what looks to be a revenue deceleration but I think might not be as bad as you are thinking.
Two things I think maybe masking some of the growth. First one is currency exchange rate issue. I tried to quickly find MDB’s international growth rate but could not find it. I did see where MDB did get more their foreign currency in British Pounds and some other currency, some of ESTC is China. I did not do a deep dive to see where ESTC versus MDB foreign currency is coming from, it may be no difference, if I look harder. However ESTC referenced “constant currency basis” a few times in earnings call. I looked back at ESTC last earnings call, that phrase was never used.
“Constant currency” would change that 63% revenue growth number to 68%.
The other may be due to a revised pricing model that ESTC did for their SAS product. I have yet to do a deep dive on it, but from the call it seems that the SAS product is cheaper than the other product and probably has different accounting method (my assumption from following other companies). That change has altered the comparison of previous quarters. Additionally the SAS product has been growing at a faster rate, so it would amplify that issue.
Tyler Radke
Great. And then maybe a follow-up. As we think about the guidance for next year, maybe just help us understand your expectation for the SaaS revenue business. I know you made some changes with the one hot architecture, which I think offered more favorable pricings, customer based on their memory usage. But just help us understand the context of that as we think about the growth in that line for next year.
Janesh Moorjani
Hey, so this is Janesh. Happy to do that. Overall, we remain very bullish about the SaaS opportunity that we see ahead of us. You will see that for the past few quarters our SaaS business has continued to grow faster than the self managed business. Broadly, I would say we would expect that trend to continue in the future. We don’t do anything that tries to influence customer behavior one way or another. We are relatively agnostic when it comes to customer preference in that regard. And so we will continue to serve the customer in the best way that makes sense for them, but we do expect that that business will grow a little bit faster than what we’ve seen before. The other piece, I will just take the opportunity here to point out is that we made the architecture changes that you talked about around three quarters ago. And in conjunction with that, we had launched our revised pricing model, and so we’ve still got one quarter of that pricing headwind to go before we lap that at the start of Q2 of this fiscal.
So based on that statement with ESTC 82%, 79%, --price change-- 72%, 70%, 68% (constant currency measure). If you kinda put those back into the equation, now all of sudden ESTC growth does not seem to be slowing so much. From the sounds of it, growth may even go back up after they get past the revised pricing comparisons.
Again this was pretty quick and dirty on my part. If you find something different please correct. I just read through the latest ESTC earnings report and felt maybe it was not as bad as it looked in your example.