Elastic shares snap back 18% as investors give thumbs down to outlook
AInvestFriday, Mar 1, 2024 2:36 am ET
2min read
ESTC --

Elastic, a leading provider of cloud-based enterprise search software, reported its Q3 (Jan) earnings, exceeding expectations with a solid performance. Shares rallied 80% in the months leading up to the report as it"s AI growth attracted investors. The company provided a cautious outlook which has led to a 20% decline in the stock in after hours. 

Key Financial Highlights: 

* Total customer count with Annual Contract Value (ACV) greater than $100,000 was over 1,270, compared to over 1,220 in Q2 FY24 and over 1,110 in Q3 FY23. 

* Total subscription customer count was approximately 20,800, compared to approximately 20,700 in Q2 FY24 and over 19,900 in Q3 FY23. 

* Net Expansion Rate was approximately 109%. 

* Elastic Cloud revenue was $143 million, an increase of 29% year-over-year.

The company reported earnings per share of $0.36, surpassing the consensus estimate of $0.31. Revenues for the quarter stood at $327.96 million, representing a year-over-year increase of 19.4%, slightly beating the estimate of $320.77 million.

The total customer count with Annual Contract Value (ACV) greater than $100,000 also showed a positive trend, reaching over 1,270 in Q3 FY24, compared to over 1,220 in the previous quarter, and over 1,110 in Q3 FY23. The total subscription customer count also increased to approximately 20,800 compared to approximately 20,700 in Q2 FY24, and over 19,900 in Q3 FY23

One key metric showcasing Elastic's strong customer relationships is the Net Expansion Rate, which stood at approximately 109%. This suggests that existing customers are expanding their contracts, indicating high satisfaction levels. 

Looking ahead, Elastic issued guidance for Q4 (Apr), expecting earnings per share of $0.18-0.20, compared to the FactSet Consensus estimate of $0.19. The company projects revenues of $328-330 million for the same period, slightly outperforming the consensus of $327.16 million. 

Furthermore, Elastic raised its guidance for FY24, projecting earnings per share of $1.15-1.18, surpassing the consensus estimate of $1.13. Revenue expectations for FY24 were also increased to $1.260-1.262 billion, compared to the previous guidance of $1.247-1.253 billion, and ahead of the consensus estimate of $1.25 billion. 

These upward revisions in guidance reflect the company's confidence in its future growth prospects. 

Despite the positive earnings report, there was some concern over the deceleration in cloud growth. Elastic's cloud revenue grew by 29% year-over-year to $143 million, indicating a slower rate of growth compared to the previous quarter's 31%. This development raised questions among investors and analysts, leading to potential short-term concerns for the company's stock performance. 

Elastic's stock has been on a remarkable upward trend, gaining 80% in the past six months leading up to the earnings report. The company's growth has been driven by sales expansion and its positioning of cloud-based enterprise search software as a generative artificial intelligence (AI) solution. 

Elastic emphasized these efforts in its earnings release, demonstrating its commitment to innovation and staying at the forefront of the rapidly evolving AI landscape. 

In conclusion, Elastic has delivered a strong Q3 earnings report that surpassed expectations. With robust financial performance, increased customer count, and raised guidance for FY24, the company is well-positioned for future growth. While the deceleration in cloud growth may raise some concerns, Elastic's overall positive trajectory and strategic initiatives make it an attractive investment opportunity worth considering.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.