It's been an interesting week for big data names, to say the
least. On Wednesday night, two recent big data IPOs -- Cloudera (CLDR) and
Hortonworks (HDP) -- announced that they entered into a definitive agreement to
merge, which sent shares of both stocks surging higher. And now, this morning,
big data IPO Elastic (ESTC) has priced its 7.0 mln share IPO above expectations
at $36 versus the $33-$35 expected range.
Investor interest and demand for big data stocks certainly isn't a new development. Looking back, throughout this year, a number of big winners have emerged in this space. For instance, since their respective public launches, Pluralsight (PS) has surged by 79%, i3Verticals (IIIV) is up 80%, and Endava (DAVA) has gained about 40%.
Broadly speaking, the cause for the enthusiasm is that the growth potential and opportunity for these companies is very compelling due to the ever-increasing amount of data that enterprises must deal with, along with the growing variety and complexity of data. Gathering, securing, storing, and analyzing data has become a necessity for organizations seeking to make the best strategic business decisions possible.
As for ESTC, its open source software takes in vast amounts of data from any source, in any format, with the capability to then perform search, analysis, and visualization on gathered material in a matter of milliseconds. Simply put, its software allows users and customers to instantly find relevant information inside large amounts of data.
Its IPO, which was led by Goldman Sachs, JP Morgan, Barclays, and RBC Capital Markets, generated $252 mln in total gross proceeds. The stock opened for trading earlier this morning on the NYSE at $70.
ESTC's core product is a software offering known as "Elastic Stack", formerly known as ELK Stack. At the heart of the Elastic Stack suite is Elasticsearch, which is a distributed, real-time search and analytics engine and data storage repository for all types of data, including textual, numerical, geo-spatial, structured, and unstructured data. Other components of the stack product include:
- Kibana: As the user interface for Elastic Stack, it is the visualization layer for data stored in Elasticsearch. It's also the management and configuration interface for all parts of Elastic Stack.
- Beats: A family of lightweight, single-purpose data shippers for sending data from edge machines to Elasticsearch or Logstash.
- Logstash: A data processing pipeline for ingesting data into Elasticsearch or other storage systems from many different sources simultaneously.
The Elastic Stack can be deployed at a physical location, in
public or private clouds, or in hybrid environments. Most of its customers
manage their own deployments, but to help with complex deployment scenarios,
ESTC offers Elastic Cloud Enterprise -- a paid product -- to deliver
centralized provisioning, management, and monitoring across deployments.
Regarding its business model, the company's background is rooted in open source software; many of the software's features are free of charge. However, some require a paid subscription that include access to its proprietary functions, as well as IT support. So, in essence, the company employs a land-and-expand approach.
For this most quarter ended July 31, 2018, revenue jumped by 79% to $56.6 mln. Total subscription revenue (91% of total) increased 76%, and over 40% of this increase was due to sales to new customers, with the remaining increase resulting from an increase in sales to existing customers.
Gross margin fell to 73% from 77% in the year ago period as cost of revenue surged by 110% to $41.1 mln. This increase was primarily due to an increase of $2 mln in cloud infrastructure costs, an increase of $1.8 mln in personnel and related charges from growth in headcount in its support organization.
Like most tech companies in their growth curve, its largest expense is Sales & Marketing. For the quarter, this expense spiked by 78% to $30.4 mln. On a percentage of revenue basis, it was basically flat at 54%. Total operating expenses were up 78% to $59.5 mln.
As a result of the above, the company had an operating loss of ($18.4) mln compared to ($10.0) mln in the year ago period. However, on the positive side, it generated positive cash flow of $4.8 mln, up sharply from $456K for the three months ended July 31, 2017.