What Happened:
Shares of search software company Elastic (NYSE:ESTC) fell 29% in the pre-market session after the company reported second-quarter earnings results. Its full-year revenue guidance was below expectations. Notably, the full-year revenue guidance was revised downwards, which is never a good sign. Overall, this was a weaker quarter, and for a company where topline growth is an area of intense focus, the revenue guidance is disappointing and weighing on shares. Following the results, Bank of America analysts downgraded the stock from Buy to Neutral and lowered the price target from $140 to $94.
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What is the market telling us:
Elastic’s shares are very volatile and over the last year have had 16 moves greater than 5%. But moves this big are very rare even for Elastic and that is indicating to us that this news had a significant impact on the market’s perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the stock dropped 17.7% on the news that the company reported third-quarter results with decelerating customer growth and net retention rate. Guidance was generally fine, with revenue and adjusted operating margin guidance in line with to above expectations. Zooming out, this was still a decent, albeit mixed, quarter, showing that the company is staying on track. However, the stock is down as investors were likely expecting more.
Elastic is down 29.2% since the beginning of the year, and at $75.39 per share it is trading 43.7% below its 52-week high of $133.81 from February 2024. Investors who bought $1,000 worth of Elastic’s shares 5 years ago would now be looking at an investment worth $858.80.
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