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Elastic (ESTC) Shares Skyrocket, What You Need To Know

StockStory - Fri Dec 1, 2023

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What Happened:

Shares of search software company Elastic (NYSE:ESTC) jumped 17.7% in the mornin session after the company reported a "beat and raise" quarter. Second quarter results beat analysts' billings, revenue, and non-GAAP EPS expectations. Management stated that "...thoughtful investments and innovation in AI has continued to drive customer excitement and engagement...Generative AI is driving a resurgence of interest in search as customers use semantic search, vector search, and hybrid search to ground large language models with their private business context..." While next quarter's revenue guidance was in line, non-GAAP operating profit guidance was ahead, showing stronger-than-expected profitability. Lastly, the company raised its full year outlook for revenue, non-GAAP operating profit, and non-GAAP EPS. Overall, the results were strong. 

Following the results, Wells Fargo analyst Andrew Nowinski raised the stock's rating from Equal Weight (Neutral) to Overweight (Buy) and increased the price target from $70 to $115. He added that "generative artificial intelligence, log analytics, security information, and event management are likely to drive a revenue re-acceleration."

Is now the time to buy Elastic? Access our full analysis report here, it's free.

What is the market telling us:

Elastic's shares are very volatile and over the last year have had 17 moves greater than 5%. But moves this big are very rare even for Elastic and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 3 months ago, when the stock gained 8.3% on the news that the company reported an impressive "beat and raise" quarter. Key operating metrics, including billings, revenue and non-GAAP operating profit, exceeded Wall Street's expectations. Next quarter's guidance was largely ahead, and the full year outlook was raised as well. On the other hand, its net revenue retention fell. During the quarter, Elastic introduced Elastic AI Assistant, which helps cyber security and DevOps analysts investigate threats and resolve technical issues to keep their systems running efficiently. It also improved the performance of its Elasticsearch platform, which allows faster search aggregations, cross-cluster search, and dense vector search acceleration for semantic search. Zooming out, this was still a solid quarter, showing that the company is staying on track.

Elastic is up 111% since the beginning of the year. Investors who bought $1,000 worth of Elastic's shares 5 years ago would now be looking at an investment worth $1,294.

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