Elastic (NYSE:ESTC) Posts Better-Than-Expected Sales In Q3, Provides Optimistic Full Year Guidance

Jabin Bastian /
2022/03/03 4:16 pm EST
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Search software company Elastic (NYSE:ESTC) beat analyst expectations in Q3 FY2022 quarter, with revenue up 42.5% year on year to $223.9 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $231 million at the midpoint, 3.02% above what analysts were expecting. Elastic made a GAAP loss of $56.7 million, down on its loss of $37.9 million, in the same quarter last year.

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

Elastic (ESTC) Q3 FY2022 Highlights:

  • Revenue: $223.9 million vs analyst estimates of $209.7 million (6.78% beat)
  • EPS (non-GAAP): -$0.12 vs analyst estimates of -$0.20
  • Revenue guidance for Q4 2022 is $231 million at the midpoint, above analyst estimates of $224.2 million
  • Free cash flow of $4.81 million, up from negative free cash flow of $12.2 million in previous quarter
  • Net Revenue Retention Rate: 130%, in line with previous quarter
  • Customers: 17,900, up from 17,000 in previous quarter
  • Gross Margin (GAAP): 72.6%, in line with same quarter last year

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.

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 impressive over the last year, growing from quarterly revenue of $157.1 million, to $223.9 million.

Elastic Total Revenue

And unsurprisingly, this was another great quarter for Elastic with revenue up 42.5% year on year. On top of that, revenue increased $17.9 million quarter on quarter, a very strong improvement on the $12.8 million increase in Q2 2022, and a sign of acceleration of growth.

Guidance for the next quarter indicates Elastic is expecting revenue to grow 30% year on year to $231 million, slowing down from the 43.6% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 22.8% over the next twelve months.

There are others doing even better than Elastic. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 150% since the IPO last December. You can find it on our platform for free.

Customer Growth

You can see below that Elastic reported 17,900 customers at the end of the quarter, an increase of 900 on last quarter. That is a slightly slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum might be slowing a little.

Elastic Customers

Key Takeaways from Elastic's Q3 Results

With a market capitalization of $7.98 billion Elastic is among smaller companies, but its more than $864.3 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We were impressed by the exceptional revenue growth Elastic delivered this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, there was a deterioration in gross margin. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is up 1.54% on the results and currently trades at $82 per share.

Should you invest in Elastic right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.