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Elastic's (NYSE:ESTC) Q2 Sales Top Estimates, Stock Jumps 14.9%

StockStory - Thu Nov 30, 2023

ESTC Cover Image

Search software company Elastic (NYSE:ESTC) announced better-than-expected results in Q2 FY2024, with revenue up 17.5% year on year to $310.6 million. The company expects next quarter's revenue to be around $320 million, in line with analysts' estimates. It made a non-GAAP profit of $0.37 per share, improving from its loss of $0 per share in the same quarter last year.

Is now the time to buy Elastic? Find out by accessing our full research report, it's free.

Elastic (ESTC) Q2 FY2024 Highlights:

  • Revenue: $310.6 million vs analyst estimates of $304.1 million (2.2% beat)
  • Calculated Billings: $346.3 million well above analyst estimates of $308.9 million
  • EPS (non-GAAP): $0.37 vs analyst estimates of $0.24 ($0.13 beat)
  • Revenue Guidance for Q3 2024 is $320 million at the midpoint, roughly in line with what analysts were expecting
  • The company slightly raised its revenue guidance for the full year of $1.25 billion at the midpoint (also raised non-GAAP operating margin and non-GAAP EPS outlook)
  • Free Cash Flow was -$3.28 million, down from $37.18 million in the previous quarter
  • Net Revenue Retention Rate: 110%, down from 113% in the previous quarter
  • Customers: 20,700, up from 20,500 in the previous quarter
  • Gross Margin (GAAP): 74.2%, up from 71.8% in the same quarter last year (miss)

“We exceeded our expectations across both revenue and non-GAAP operating margin,” said Ash Kulkarni, CEO, Elastic.

Started by Shay Banon as a search engine for his wife's growing list of recipes at Le Cordon Bleu cooking school in Paris, Elastic (NYSE:ESTC) helps companies integrate search into their products and monitor their cloud infrastructure.

Data Infrastructure

Generating insights from system level data is an increasing priority for most businesses, but to do so requires connecting and analyzing piles of data stored and siloed in separate databases. This is the demand driver for cloud based data infrastructure software providers, who can more readily integrate, distribute and process information vs. legacy on-premise software providers.

Sales Growth

As you can see below, Elastic's revenue growth has been strong over the last two years, growing from $206 million in Q2 FY2022 to $310.6 million this quarter.

Elastic Total Revenue

This quarter, Elastic's quarterly revenue was once again up 17.5% year on year. We can see that Elastic's revenue increased by $16.86 million quarter on quarter, which is a solid improvement from the $13.81 million increase in Q1 2024. Shareholders should applaud the re-acceleration of growth.

Next quarter, Elastic is guiding for a 14.2% year-on-year revenue decline to $320 million, a further deceleration from the 22.6% year-on-year decrease it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 16.7% over the next 12 months before the earnings results announcement.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Customer Growth

Elastic reported 20,700 customers at the end of the quarter, an increase of 200 from the previous quarter. That's a little slower customer growth than what we've observed in past quarters, suggesting that the company's customer acquisition momentum is slowing.

Elastic Customers

Key Takeaways from Elastic's Q2 Results

With a market capitalization of $7.86 billion, Elastic is among smaller companies, but its $969.2 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.

It was good to see Elastic beat analysts' billings, revenue, and non-GAAP EPS expectations this quarter. 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. 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..." Overall, the results could were strong. The stock is up 15.8% after reporting and currently trades at $92.99 per share.

So should you invest in Elastic right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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