Elastic N.V. (NYSE:ESTC) last week reported its latest annual results, which makes it a good time for investors to dive in and see if the business is performing in line with expectations. The results look positive overall; while revenues of US$428m were in line with analyst predictions, statutory losses were 7.0% smaller than expected, with Elastic losing US$2.12 per share. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Taking into account the latest results, the consensus forecast from Elastic's eleven analysts is for revenues of US$537.3m in 2021, which would reflect a sizeable 26% improvement in sales compared to the last 12 months. Losses are forecast to narrow 7.1% to US$1.97 per share. Before this latest report, the consensus had been expecting revenues of US$562.5m and US$2.21 per share in losses. Although the revenue estimates have fallen somewhat, Elastic'sfuture looks a little different to the past, with a the loss per share forecasts in particular.
There was a decent 16% increase in the price target to US$93.29, with the analysts clearly signalling that the expected reduction in losses is a positive, despite a weaker revenue outlook. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Elastic, with the most bullish analyst valuing it at US$108 and the most bearish at US$75.00 per share. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Elastic's past performance and to peers in the same industry. It's pretty clear that there is an expectation that Elastic's revenue growth will slow down substantially, with revenues next year expected to grow 26%, compared to a historical growth rate of 44% over the past three years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 12% next year. Even after the forecast slowdown in growth, it seems obvious that Elastic is also expected to grow faster than the wider industry.
The Bottom Line
The most obvious conclusion is that the analysts made no changes to their forecasts for a loss next year. They also downgraded their revenue estimates, although industry data suggests that Elastic's revenues are expected to grow faster than the wider industry. Still, earnings per share are more important to value creation for shareholders. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have forecasts for Elastic going out to 2023, and you can see them free on our platform here.
However, before you get too enthused, we've discovered 4 warning signs for Elastic (1 is a bit concerning!) that you should be aware of.
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