Zero Genie

Search technology is at the heart of Elastic (ESTC). The company’s search engine enables users to explore and analyze vast amounts of both structured and unstructured data, with the goal to quickly solve business problems. 

With its roots in open source, Elastic created Elastic Stack as its monetization vehicle. Comprised of proprietary software products that address numerous use cases, Elastic Stack drove the company’s fiscal 2019 (ended April) revenue growth of 70%.

Elasticsearch is the search component within Elastic Stack. In the April quarter, the company shipped its next-generation cluster coordination layer, which makes Elasticsearch easier to scale and further hardens its resiliency in case of a major failure. Cross-cluster replication lets users work across multiple cloud providers and hybrid strategies. The recent advancements open up Elasticsearch to more mission-critical data sets, expanding the addressable use cases.

After a significant speed boost, Elasticsearch now returns prioritized results to users much more quickly. That higher level of performance is especially helpful for e-commerce sites and app search customers, says the company. The latest release of Elastic Enterprise Search, a self-managed product, gives users the ability to explore content across common SaaS-based data sources (including Google Drive, GitHub, Salesforce and Dropbox) from a single search box.

The Kibana user interface of Elastic Stack provides the data visualization component for all of the data stored in Elasticsearch. Kibana provides interactive data views and dashboards. Beats is a family of lightweight data shippers used to send data between edge machines and Elasticsearch or Logstash, a central data transformation engine that can receive and pull data from multiple sources—including network devices, API endpoints and public cloud services.

Maps is a new product that gives users the ability to visualize location-based data in Elasticsearch. One Elastic customer, Delhivery, a logistics service in India, delivers one million packages daily during peak periods. Each package can generate more than 50 data points related to size, geolocation and status, with the information captured from the field every 20 seconds. Delhivery can use Elastic Maps to visibly streamline its operations and resolve delivery issues with ease.

Elastic is becoming more competitive in the crowded application performance monitoring (APM) segment of the observability market. Elastic’s APM product has matured enough that it’s only missing some minor features. The company sees the observability market trending toward a convergence of logging, metrics, uptime monitoring and APM. Elastic’s go-to-market message emphasizes that the company provides all four of those offerings across a unified pricing model and user interface. 

Security is a promising growth area for Elastic. The company’s new SIEM product provides security analytics. Elastic SIEM doesn’t need to be installed or configured, so there’s no need to be a security expert to get value from it. An interactive drag-and-drop experience lets users deconstruct and document a timeline of events related to a security incident. Machine learning features automatically detect and alert on threats originating from unusual events.

Elastic in June announced it would pay $234 million to buy Endgame, a security vendor focused on endpoint prevention, detection and response. Elastic was attracted to Endgame because endpoints are a key source of security data. Elastic CEO Shay Banon thinks the endpoint and SIEM markets can converge over time. With Endgame added to the Elastic Stack, users will gain access to a whole new level of security analytics to help provide better attack protection.

Elastic is on a strong growth track. In late August, the company reported FQ1 (ended July) revenue rose 58% to $89.7 million, 7.4% above the consensus estimate. On a constant-currency basis, revenue was up 62%. Subscription revenue of $82.4 million rose nearly 60%, matching the growth rate from the previous quarter. Revenue performance obligations (RPO) of $363 million advanced 59%.

The company in FQ1 added 700+ new accounts. There were 35 new customers with annual contract value (ACV) over $100,000, bringing the total to 475+. The company’s total customer count is greater than 8,800. The net expansion rate remained above the 130% level for the eleventh quarter in a row.

For FY’20 (ending April), Elastic’s latest revenue guidance range of $406 million to $412 million (up from the initial outlook of $397 million to $403 million) represents growth of 51% at the midpoint. It looks like the business has the momentum to support top-line upside throughout the year, so there should be more positive revisions. 

Elastic shares have had a good run. The company went public in October 2018 at $36, with an opening trade at $70. In late July, the stock reached a new post-IPO high of $104.10.

With the shares now trading back in the low $80s, Elastic’s enterprise value is 14.7 times the FY’20 guidance midpoint of $409 million. The latest consensus revenue estimate stands at $410.3 million, while the Street-high estimate is $414.8 million.