Elastic (NYSE:ESTC) Q1: Beats On Revenue But Stock Drops

Petr Huřťák /
2022/08/25 4:20 pm EDT

Search software company Elastic (NYSE:ESTC) reported Q1 FY2023 results that beat analyst expectations, with revenue up 29.5% year on year to $250 million. Guidance for the full year was in line with analyst expectations with revenues guided to $1.08 billion at the midpoint. Elastic made a GAAP loss of $69.5 million, down on its loss of $34.4 million, in the same quarter last year.

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Elastic (ESTC) Q1 FY2023 Highlights:

  • Revenue: $250 million vs analyst estimates of $246.3 million (1.51% beat)
  • EPS (non-GAAP): -$0.15 vs analyst estimates of -$0.17
  • Revenue guidance for Q2 2023 is $261 million at the midpoint, roughly in line with what analysts were expecting
  • The company reconfirmed revenue guidance for the full year, at $1.08 billion at the midpoint
  • Free cash flow was negative $10.1 million, compared to negative free cash flow of $5.25 million in previous quarter
  • Net Revenue Retention Rate: 130%, in line with previous quarter
  • Customers: 19,300, up from 18,600 in previous quarter
  • Gross Margin (GAAP): 70.8%, down from 74.2% same quarter last year

“We delivered a strong Q1 and continued to execute well across the business driving 34% constant currency year-over-year revenue growth as we deepen our focus on Elastic Cloud, which represented 39% of total revenue this quarter versus 32% one year ago,” 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.

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 very strong over the last year, growing from quarterly revenue of $193 million, to $250 million.

Elastic Total Revenue

This quarter, Elastic's quarterly revenue was once again up a very solid 29.5% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $10.7 million in Q1, compared to $15.4 million in Q4 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 26.7% year on year to $261 million, slowing down from the 42.1% 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 26.1% over the next twelve months.

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Customer Growth

You can see below that Elastic reported 19,300 customers at the end of the quarter, an increase of 700 on last quarter. That's in line with the customer growth we have seen last quarter but a bit below what we have typically seen over the last year, suggesting that sales momentum may be slowing a little.

Elastic Customers

Key Takeaways from Elastic's Q1 Results

With a market capitalization of $7.88 billion Elastic is among smaller companies, but its more than $848.7 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 happy to see it topped analysts’ revenue expectations, even if just narrowly. On the other hand, revenue guidance was quite conservative and gross margin deteriorated a little. Overall, this quarter's results could have been better. The company is down 5.75% on the results and currently trades at $80.02 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.