Elastic's (NYSE:ESTC) Q3 Sales Top Estimates But Stock Drops 14%
Search software company Elastic (NYSE:ESTC) reported results ahead of analysts' expectations in Q3 FY2024, with revenue up 19.4% year on year to $328 million. The company expects next quarter's revenue to be around $329 million, in line with analysts' estimates. It made a non-GAAP profit of $0.36 per share, improving from its profit of $0.17 per share in the same quarter last year.
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Elastic (ESTC) Q3 FY2024 Highlights:
Revenue: $328 million vs analyst estimates of $320.8 million (2.2% beat)
EPS (non-GAAP): $0.36 vs analyst estimates of $0.32 (13.5% beat)
Revenue Guidance for Q4 2024 is $329 million at the midpoint, roughly in line with what analysts were expecting (operating margin guidance was also roughly in line)
Free Cash Flow of $51.31 million is up from -$3.28 million in the previous quarter
Net Revenue Retention Rate: 109%, in line with the previous quarter
Customers: 20,800, up from 20,700 in the previous quarter
Gross Margin (GAAP): 74.2%, up from 72.7% in the same quarter last year
Market Capitalization: $12.92 billion
“Elastic delivered another strong quarter and I'm pleased with our momentum and execution that drove our third quarter results,” said Ash Kulkarni, CEO, Elastic.
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.
Data Infrastructure
Generating insights from system level data is an increasing priority for most businesses, but to do so requires connecting and analyzing piles of data stored and siloed in separate databases. This is the demand driver for cloud based data infrastructure software providers, who can more readily integrate, distribute and process information vs. legacy on-premise software providers.
Sales Growth
As you can see below, Elastic's revenue growth has been strong over the last two years, growing from $223.9 million in Q3 FY2022 to $328 million this quarter.
This quarter, Elastic's quarterly revenue was once again up 19.4% year on year. We can see that Elastic's revenue increased by $17.35 million in Q3, which was roughly the same growth rate observed in Q2 2024. This steady quarter-on-quarter growth shows that the company can maintain its paced growth trajectory.
Next quarter's guidance suggests that Elastic is expecting revenue to grow 17.5% year on year to $329 million, in line with the 17% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 16.6% over the next 12 months before the earnings results announcement.
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Customer Growth
Elastic reported 20,800 customers at the end of the quarter, an increase of 100 from the previous quarter. , suggesting that the company's customer acquisition momentum is slowing.
Key Takeaways from Elastic's Q3 Results
Revenue outperformed Wall Street's estimates. On the other hand, its customer growth slowed and retention rates continue to decline. Guidance was generally fine, with revenue and adjusted operating margin guidance in line with to above expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. Investors were likely expecting more, and the stock is down 14% after reporting, trading at $114.9 per share.
So should you invest in Elastic right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
