Elastic's (NYSE:ESTC) Q2 Sales Top Estimates But Stock Drops 11.5%

Jabin Bastian /
2021/12/01 4:25 pm EST
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Search software company Elastic (NYSE:ESTC) reported Q2 FY2022 results that beat analyst expectations, with revenue up 42.1% year on year to $205.9 million. Guidance for next quarter's revenue was $208 million at the midpoint, 2.79% above the average of analyst estimates. Elastic made a GAAP loss of $47 million, down on its loss of $29.1 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) Q2 FY2022 Highlights:

  • Revenue: $205.9 million vs analyst estimates of $194.5 million (5.86% beat)
  • EPS (non-GAAP): -$0.09 vs analyst estimates of -$0.16 (42.9% beat)
  • Revenue guidance for Q3 2022 is $208 million at the midpoint, above analyst estimates of $202.3 million
  • The company lifted revenue guidance for the full year, from $811 million to $829 million at the midpoint, a 2.21% increase
  • Free cash flow was negative $12.2 million, down from positive free cash flow of $12.4 million in previous quarter
  • Net Revenue Retention Rate: 130%, in line with previous quarter
  • Customers: 17,000, up from 16,000 in previous quarter
  • Gross Margin (GAAP): 73.8%, in line with same quarter last year

“Our strong second-quarter results were fueled by the rapid adoption of Elastic Cloud, the increased strategic relevance of our solutions, and continued expansion across our customer base,” said Shay Banon, Elastic founder and chief executive officer.

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.

Enterprises are struggling to keep up with the growing volume of data generated across their systems. That, coupled with the large number of users that are using search as their primary way to access information or functionality inside enterprise apps, is driving the demand for advanced search software.

Sales Growth

As you can see below, Elastic's revenue growth has been impressive over the last year, growing from quarterly revenue of $144.8 million, to $205.9 million.

Elastic Total Revenue

And unsurprisingly, this was another great quarter for Elastic with revenue up 42.1% year on year. But the growth did slow down a little compared to last quarter, as Elastic increased revenue by $12.8 million in Q2, compared to $15.4 million revenue add in Q1 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 24.3% over the next twelve months, although estimates are likely to change post earnings.

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Customer Growth

You can see below that Elastic reported 17,000 customers at the end of the quarter, an increase of 1,000 on last quarter. That's in line with the customer growth we have seen over the last couple of quarters, suggesting that the company can maintain its current sales momentum.

Elastic Customers

Key Takeaways from Elastic's Q2 Results

We enjoyed seeing Elastic’s impressive revenue growth this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. But investors might have been expecting more and the company is down 11.5% on the results and currently trades at $123 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.