This time, its 4Q19 loss per share of ($0.28) was merely in line with the consensus and it provided downside EPS guidance for both Q1 and FY20.
The company is forecasting a Q1 loss per share of ($0.44)-($0.42) vs. the ($0.32) consensus and a FY20 loss per share of ($1.49)-($1.33) vs. the ($1.24) expectation.
Click here to access ESTC's earnings press release.
The downside guidance isn't due to an expected slowdown in demand, as reflected in its upside revenue guidance for both periods.
Rather, ESTC is planning to ramp up its investments in order to scale globally and to drive growth over the long term. In fact, during the earnings call last night, its CEO said that it is "doubling down on its R&D investments."
A significant portion of its spending will be in the areas of sales and marketing as it expands head count. These efforts are expected to help fuel growth this year and beyond while its investments in R&D are expected to pay off further down the road.
The company will especially focus on launching new products and features that will increase its value proposition. In particular, ESTC believes it is well positioned to capture share in the application performance monitoring and security markets.
Also, ESTC is bolstering its advanced paid security offerings and with its acquisition of Endgame (announced alongside its earnings report), it has bolstered its presence in endpoint security, providing prevention, detection, and response capabilities.
The acquisition will also negatively impact earnings since it is anticipating insignificant revenue this year due to accounting standards, while taking on the brunt of acquisition expenses.
Similar to its R&D initiatives, ESTC sees the Endgame acquisition as a longer-term driver as it integrates their product into the Elastic Stack.
All of ESTC's demand-related metrics are strong, so it seems sensible that the company would look to strike while the iron is hot. Revenue surged by 63% yr/yr, billings grew by 57%, its net expansion rate remained over 130% for the tenth straight quarter, and its total customer count with ACV above $100K increased to over 440 from 380 last quarter.
These impressive metrics illustrate that its existing customers are consistently finding new use cases for ESTC's enterprise search and data analytics software.
Key Takeaways: The in-line EPS number and downside EPS guidance is a divergence from its recent performance. Investors hoping that ESTC could soon be moving closer to profitability are likely feeling some disappointment this morning -- especially those that are leery of its rich valuation (~15x FY20 revenue).
However, the downside guidance isn't due to a negative change in underlying demand or from a lack of execution.
Instead, the company is taking advantage of its strong position and is re-investing in its business for the long haul. That is something that investors with a longer-term time horizon can appreciate, helping to explain why the stock has held up reasonably well today.