What happened
Shares of Elastic N.V. (ESTC 5.44%) were up 15% on Thursday as of noon ET. The enterprise software company, which allows companies to search their vast IT ecosystems for relevant data quickly, handily beat expectations on last night's earnings report, while also delivering solid guidance for the upcoming fiscal year.
Elastic's share price had been rocked along with many others in the SaaS sector this year, as inflation and rising interest rates have taken down valuations for virtually all growth stocks. However, Elastic, along with other highly relevant software names, were priced highly for a reason, as their results have generally been better than expected this earnings season.
NYSE: ESTC
Key Data Points
So what
In its fourth fiscal quarter ending April 30, Elastic delivered 35% revenue growth (37% on a constant currency basis), beating expectations, and an adjusted (non-GAAP) loss per share of $0.16, which was also better than expected by $0.05.
In terms of relevant key performance indicators, customers grew by 700 in the quarter to 18,600, and customers that provide over $100,000 in annual contract value grew by 70 to 960. Those are pretty nice sequential numbers. Meanwhile, existing customers continued to purchase more and more subscriptions with Elastic's net expansion rate coming in at a very solid 130%. Of note, Elastic's cloud-based software, which makes up about one-third of revenue, grew an even higher 71%. That indicates that as the cloud-based offering grows as a percentage of revenue, Elastic's overall revenue growth could sustain a high rate for several years at least.
This earnings season, the companies that have been most relevant to digital transformation, including cloud growth, cybersecurity, and other new technologies, have done exceedingly well, at least from an operating point of view. That may be because digital transformation is an ongoing trend that helps competitiveness, and tech-based automation and decision-making help reduce inflationary pressures, especially from labor.
Image source: Getty Images.
Now what
Despite today's nice jump, Elastic is still down nearly 50% on the year.
So, is now still a good time to buy shares before an even bigger bounce? As is the case with all of these high-growth but profit-less software stocks, the answer is, it depends. High-growth stocks are long-duration assets, and highly sensitive to long-term inflation expectations and interest rates. Currently, Elastic trades around 6.2 times the next 12-month revenue expectations.
That's not especially expensive when compared to other highfliers in the sector. However, keep in mind that Elastic is still losing a hefty amount on its bottom line, with a $174 million operating loss last quarter when factoring in stock-based compensation (which one should).
That makes Elastic and other SaaS stocks still a risky proposition if the market switches back to caring about GAAP profits tomorrow. However, today was certainly a nice bounce, and a reaffirmation that these companies' top lines should continue to grow nicely for the foreseeable future.
