What’s driving the sell off?
To me the headline is calculated billings. As with ZS, ESTC’s growth here has slowed.
Jul 2018: 76%
Oct 2018: 73%
Jan 2019: 68%
Apr 2019: 57%
Jul 2019: 51%
Oct 2019: 42%
This is simply not good. That said, it’s somewhat inevitable for all businesses…so we need to take it in context. Here are a few mitigating factors:
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ESTC said they “experienced some delays in our federal government business as some deals moved out of the month of October.” That’s not great, but it could explain a dip here and set up a re-acceleration next quarter.
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As Darth explained, the monthly SaaS billing makes calculated billings lower because there’s less deferred revenue coming in. https://discussion.fool.com/estc-had-a-really-good-quarter-here-… Here’s what ESTC said: We saw continued strength in our Elastic Cloud offerings with particular strengthen in our monthly SaaS business, which now makes up almost 50% of our SaaS revenue or almost 10% of our total revenue.
side note, how much did Darth nail SaaS growth? https://discussion.fool.com/wouldn39t-they-be-all-clear-going-fo…
- Another 50%+ guide for revenue growth next quarter. This is very interesting, and seems to indicate more of a blip than a slow down.
A skeptic might ask, “Why is slowing billings ok for ESTC and not ZS?” For one, ESTC trades at a much lower valuation than ZS any way you slice it. For another, ESTC’s billings haven’t slowed to 30-something percent, just 40-something. That matters. But mostly I think these 3 mitigating factors are meaningful.
Here are some other positives from the quarter
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Revenue growth was strong and steady. I was hoping for an acceleration, but staying at roughly 60% growth is plenty to keep this in the positive column.
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Gross Margin ticked up.
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OpEx was up 73% YoY which is too much, but at least it was less than the 78% last quarter.
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As Darth mentioned, Sales and Marketing weren’t the culprit for increase in OpEx. Most of it was a huge increase in G&A (12m in Oct 2018, 19m in Jul 2019, and 32m! in Oct 2019). ESTC said This includes costs associated with our global expansion and continuing to build the infrastructure to support our growth. I’d really like to see all OpEx stabilize…maybe this is a weak positive point, but I’m hoping Sales and Marketing expense is starting to stabilize.
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They also said We expect non-GAAP operating margin in the range of negative 23% to negative 22%, which as I mentioned earlier includes approximately 2% operating margin dilution from Endgame. This is better than the -24.5% to -22.5% they guided for the year when they reported 90 days ago. And that improvement even takes this 2% headwind into account.
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Great customer growth – over 50%, awesome.
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NER still 130%+, which is up there with the best in class (like AYX, DDOG, CRWD).
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The price is right! Under $67 premarket = a PS of 15!
Conclusion
I bought more. This isn’t a blowout quarter, but this already undervalued company is chugging along, at 60% growth, and I don’t see any red flags. Even the yellow flags have good explanations. I’m still on the ESTC bandwagon. It’s not AYX-level confidence, but I’m happy with a large position.
Bear
PS here’s the data I posted last quarter: https://discussion.fool.com/below-i39m-updating-my-usual-estc-qu…
…and here’s an update through this quarter
Quarter_________ Jan18 Apr18 Jul18 Oct18 Jan19 Apr19 Jul19 Oct19
Fiscal Q_________ FiscQ4 FiscQ1 FiscQ2
Calc Bill_________ 47.5 73.3 59.2 88.5 79.8 115.4 89.4 125.3
YoY Ch%_________ 76.2% 72.5% 68.0% 57.4% 51.0% 41.6%
Revenue_________ 41,681 49,572 56,644 63,575 70,835 80,599 89,710 101,106
QoQ Ch%_________ 12.5% 18.9% 14.3% 12.2% 11.4% 13.8% 11.3% 12.7%
YoY Ch%_________ 80.2% 82.4% 79.0% 71.6% 69.9% 62.6% 58.4% 59.0%
Gross Prof_______ 30,915 35,972 41,087 44,988 50,411 57,157 63,459 72,345
Gross Margin_____ 74.17% 72.57% 72.54% 70.76% 71.17% 70.92% 70.74% 71.55%
OpEx____________ 43,374 55,207 59,502 72,058 74,197 89,242 105,761 124,306
YoY Ch%_________ 9.6% 76.3% 78.1% 104.7% 71.1% 61.6% 77.7% 72.5%
Op Loss_________ -12,459 -19,235 -18,415 -27,070 -23,786 -32,085 -41,371 -51,961
StockBasedComp__ 3,554 4,164 5,665 11,239 11,111 11,927 12,771 14,416
Customer Count___ 5,500 6,300 7,200 8,100 8,800 9,700
YoY Ch%_________ #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! 60.0% 54.0%
Cust w ACV > 100k 300 340 380 440 475 525
YoY Ch%_________ #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! 58.3% 54.4%
Net Expansion Rate 130%+ 130%+ 130%+ 130%+ 130%+ 130%+ 130%+ 130%+
FY Guidance_____ 258.0 267.0 403.0 412.0 417.0
YoY Ch%_________ 48.4% 51.7% 53.5%
Q Guidance______ 66.0 76.0 84.0 97.0 108.0
YoY Ch%_________ 78.4% 82.3% 48.4% 52.5% 52.5%
Shares Outstanding 72.30 74.60 77.80
Share price_______ 80.01 88.50 68.00
Cash (in mil)______ 298.00 315.20 305.00
TTM Revenue_____ 271.65 304.72 342.25
TTM Billings______ 342.90 373.10 409.90
EV/S____________ 20.20 20.63 14.57
EV/Billings________ 16.00 16.85 12.16