Drill Down Earnings, Ep. 472: Elastic Q1 earnings – ($ESTC) – A Deep Dive with Cory Johnson

Cory Johnson (0:04)

Welcome to Drill Down Earnings. Let's talk about Elastic. It's one of the 50 most important companies in technology, says me, Cory Johnson, Chief Market Strategist, Epistrophy Capital Research. Elastic is an important company for lots of reasons, but they make software that helps figure out what kind of data is being stored, structured, unstructured. It manages this data, it then slices that data up and figures out where things are and how they can relate to each other using vectorization, which is one of the core principles of AI now, but they've been doing this for a very long time. So as companies start to figure out that the value of AI can be derived from the data that they already have somewhere, the incorporation of Elastic software into those businesses can find the value, can find that data that can then be used with AI, and they're starting to really put it together at Elastic, putting up some nice numbers, and the stock is going bonkers right now. So let's talk about this quarter that they just put up. This was better than Wall Street's expectations of 470 million in revenues in 58

Oh, it's really bright about them. So the expectations are 470 million, wherever they did 478 million. Earnings per share also better than expectations, but not a huge beat, but that's just the top line numbers. We can understand the business better than that, but you're smarter than that.

Good to think I am too, sometimes I try. 15% revenue growth, consistent revenue growth from this company. And while the losses persist on a gap basis, non-gap numbers are good, and the losses frankly help them pay next to nothing in taxes. And so this business is cranking along here. Now, most of their business is a subscription business, subscribing to their software. And the interesting thing to think about the way that they sell that is, historically, they have let people use it for a single user or very small use cases that then land and expand and grow into these businesses here. So, subscriptions driving 94% of the revenue, and subscriptions are cranking, growing at a 15% clip. As I mentioned, that's most of the revenues. But the services business reaccelerated this quarter with 10% growth on a year-over-year basis.

So those are the kind of the numbers in terms of the splits of their business, but what you really see happening here is customer growth. And customers grew at 4.7% on a sequential basis here. The big customers, there are customers paying more than $100,000 a year. And that's really what you want to see here, because the big customers growing, if you look over a longer time frame for the last four years or so, you see 78% growth in their customers, are paying over $100,000 a year, up to 1,800 customers in the most recent quarter. And that's really strong for these guys, because big customers who pay more is the whole goal of bringing in the little customers who pay less, is to get them to grow and get them to add other users and let organizations see how this software is valuable to them, because then they can add on to their use cases and indeed find the value in that data. RPOs, also the orders that they have received, driven by AI have been fantastic.

$1,854,226,000 in RPOs and it's surging up 27% growth on a year-over-year basis. Again, think about that. If their orders are up 27% and the revenue is up just 15%, it bodes well for the future and the market loved these numbers. Stock just erupted after these markets.

Took a look at the numbers right after the closed stock up 18% and held it into the conference call, as we heard from the CEO Ashutosh Kulkarni. And you'll hear from him in just a second. And, you know, in context, the stock's only up 2%, but it has really picked up since the kind of April sell-off in tech stocks. It was already approaching $90 a share, and now up from that significantly after I was trading here. CEO Ashutosh Kulkarni, he's a friend of the pod. He's been on here quite a bit. If you'd like me to reach out to him and see if he'll come back, please let me know in the comments or whatever else. Because what they're doing at Elastic is really impressive. He's also right down the street here in San Francisco. So here's what he had to say on the conference call about these fantastic numbers.

Ashutosh Kulkarni (4:23)

What we're seeing is that there is still the majority of customer deployments tend to be, first and foremost, in Cloud. That's where they typically start because that's the fastest way for customers to get started. But enterprise customers and government agencies, when I say enterprise customers, I'm specifically referring to customers in regulated industries, whether it's banking, whether it's telco, especially in international markets for us outside of the Americas. What we're seeing there is a greater desire to not just have data sovereignty, but also to have operational sovereignty. In those environments, they want solutions where they can run these capabilities within their own enclaves, within their own control.