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Elastic (NYSE:ESTC) Posts Better-Than-Expected Sales In Q4 But Stock Drops


Radek Strnad /
2022/06/01 4:24 pm EDT
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Search software company Elastic (NYSE:ESTC) beat analyst expectations in Q4 FY2022 quarter, with revenue up 34.7% year on year to $239.3 million. The company expects that next quarter's revenue would be around $245 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Elastic made a GAAP loss of $65.6 million, down on its loss of $43.3 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) Q4 FY2022 Highlights:

  • Revenue: $239.3 million vs analyst estimates of $232.3 million (3% beat)
  • EPS (non-GAAP): -$0.16 vs analyst estimates of -$0.21
  • Revenue guidance for Q1 2023 is $245 million at the midpoint, above analyst estimates of $243.4 million
  • Management's revenue guidance for upcoming financial year 2023 is $1.08 billion at the midpoint, in line with analyst expectations and predicting 25.5% growth (vs 42.3% in FY2022)
  • Free cash flow was negative $5.25 million, down from positive free cash flow of $3.3 million in previous quarter
  • Net Revenue Retention Rate: 130%, in line with previous quarter
  • Customers: 18,600, up from 17,900 in previous quarter
  • Gross Margin (GAAP): 71.8%, down from 74.2% 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 $177.6 million, to $239.3 million.

Elastic Total Revenue

And unsurprisingly, this was another great quarter for Elastic with revenue up 34.7% year on year. But the growth did slow down a little compared to last quarter, as Elastic increased revenue by $15.4 million in Q4, compared to $17.9 million revenue add in Q3 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Elastic is expecting revenue to grow 26.8% year on year to $245 million, slowing down from the 49.8% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $1.08 billion at the midpoint, growing 25.5% compared to 42.3% increase in FY2022.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Customer Growth

You can see below that Elastic reported 18,600 customers at the end of the quarter, an increase of 700 on last quarter. That is a little slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing a little bit.

Elastic Customers

Key Takeaways from Elastic's Q4 Results

With a market capitalization of $5.76 billion Elastic is among smaller companies, but its more than $860.9 million in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.

It was good to see Elastic deliver strong revenue growth this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, the revenue guidance for next year indicates a significant slowdown and there was a slowdown in customer growth. Overall, this quarter's results could have been better. The company is down 9.43% on the results and currently trades at $56.23 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.

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 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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