is there enough business in the DIY customers for ESTC to continue growing at high levels? If not ESTChas to pivot their business model quick enough?
History is unanimous. It is democratization of technology. When I was in high school I taught myself machine language and assembler. The school taught BASIC, but computers were too slow to make great things out of BASIC. How many people in the world knew how to program in hexadecimal? Even Excel back then required hexadecimal codes to print and do some other things.
I miss that romantic era. Nowadays, however, there are millions of JAVA programmers and the like, and every Tom, Dick, Mohammad, and Elizabeth, is capable of sophisticated computer use with a simple iPhone or Chromebook.
The same everywhere. Technology creates solutions. Technology that is a piece of software to be used by the select few only exists when the technology is not mature enough yet, or in special cases. It never becomes mainstream (unless its free of course - as most Elastic uses are).
Yeah, ESTC needs solutions that are complete products. Datadog, last Q grew 88% (and of course this will come down - but still incredible growth), with growing emphasis of big corporations (who you think would be best able to do their own), and on a GAAP and non-GAAP basis they were basically break even while growing this fast and playing the land and expand game.
It makes a lot of sense if you think about it. ESTC, on the other hand, is growing nicely, but with far far worse financial leverage. Why? Simple, the products ESTC are offering have less value to their users than the product DDOG is selling. Therefore customers are willing to pay more to Datadog for what they get because DDOG is providing greater value.
It appears that it is not and OR issue. There are customers who want to do it themselves. There are customers who want plug and play. And many of these customers want both. But, these same customers pay far more per unit of product to Datadog than to Elastic. And yet, Elastic has much higher cost structure that they meet with a lower value product per unit of product.
So yes, Elastic needs to increase the value of its product. Elastic is doing this of course. Their plan is to under bid everyone on price, and over time improve their product so it is good enough that customers will instead opt to use Elastic because it is cheaper and works well enough.
What horse would you rather be on? Of course valuation means something. All things are not equal. But again, if Elastic stopped all their other businesses, made Elastic proprietary, became a shell, and bought Datadog, Elastic would one materially more valuable than it is today, doing what it is doing today.
Anyways, analytically, it makes sense why Datadog is financially superior business model to Elastic. Elastic is actually destroying value by maintaining open source. Whereas, Mongo has better achieved this balance of open source, while Mongo itself has become basically proprietary without possibility of a Datadog coming along to provide a higher value product.
Anyways, I don’t know how the stock will do. It has done very poorly, even post stock crash. But I think it is fair to say that Elastic has destroyed more value than it has created for itself since the IPO. Yes, destroyed value!
Okay, is that a strong enough statement? Sorry, but its true. Perhaps Elastic’s long-term plan will hit. All it takes is ONE product, one. I do not believe the open source, cheaper pricing model, will do much better creating value for shareholders. Elastic has to find that product.
SIEM appears to be where they are placing their most effort. Become the better Splunk perhaps. Lets see what they do with this. But I don’t want to invest in “hope” or hypothesis. It is about systematically investing. It is not about hitting every winning trade. So I miss it. Elastic does not systematically give the signs that my money should be stuck in it. Meanwhile, its been better invested despite how “cheap” Elastic is. By the end of the year perhaps Elastic will make its move. Let it. If it meets my methodology, then I’ll invest. The share price and valuation is simply more information. When real FUD is involved, we know what to do. But when people try to substitute “misunderstanding of fundamentals” as investable FUD…