Shares of Elastic tumbled Friday despite an earnings report from the enterprise data software company that beat expectations. Elastic stock apparently took a hit from investors' elevated expectations fpr the company after a recent rally.
Elastic late Thursday reported adjusted earnings of 36 cents per share on sales of $328 million for its fiscal 2024 third quarter ending in January. On average, analysts projected the San Francisco-based company would post adjusted earnings of 31 cents per share on sales of $321 million, according to FactSet. Earnings per share increased 111% year over year while sales increased 18%.
But some analysts flagged what appeared to be slower growth for the company's cloud business. Elastic Cloud offers a suite of its data search, cybersecurity and observability tools. Elastic said that its cloud revenue for the quarter increased 29% year over year to $143 million. But that marked a slower rate of cloud growth than the 31% the company posted a quarter earlier.
"We see Q3 as a solid quarter," Barclays analyst Raimo Lenschow wrote to clients on Thursday. "However, investors had high hopes that Cloud would re-accelerate meaningfully, but it actually decelerated slightly. In other words, the excitement (and shares) need to settle down a little post-Q3."
On the stock market today, Elastic stock is down more than 13% at 115.21. The action is taking a bite out of a big rally in which Elastic shares gained 80% in the past six months.
Elastic's AI Push
For the current quarter, Elastic management guided for sales of $329 million, based on the midpoint of its range. Analysts were projecting Elastic would tally $327 million in sales for the April quarter, according to FactSet.
On a call with analysts Thursday, Chief Executive Ash Kulkarni highlighted a pair of trends among enterprise customers.
"I saw a strong desire to leverage AI to improve business processes and elevate customer experiences," Kulkarni said. "At the same time, companies remain focused on finding ways to reduce costs."
Corporate cost-cutting on software hurt enterprise tech stocks such as Elastic in 2022. Last year offered signs of a recovery, which helped boost Elastic's shares. Now, Kulkarni said, spending by companies is stabilizing. Further, Elastic believes its broader cloud solution can help companies operate more efficiently.
Elastic said it had 20,800 subscription customers as of January, up 4.5% from a year earlier. The company defended its cloud performance, with Kulkarni telling analysts that Elastic Cloud is seeing "continued customer traction."
Elastic stock surged in recent months, after its fiscal Q2 earnings showed progress for the company's efforts to offer generative AI solutions. The software firm pitches its broader search-driven platform as a way for companies to ensure they are surfacing the best possible data to train AI models, among other tools.
Kulkarni called out "strong interest" in generative AI during the company's analyst call, but later added that AI revenue is still in its "early days."
Elastic Stock: Technical Ratings
Coming into the report, Elastic stock had a best-possible IBD Composite Rating of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating to assess a stock's performance.
Further, Elastic's IBD Relative Strength Rating was 97 out of 99. The rating compares a stock's price movement over the last 52 weeks with that of others in IBD's database.
In addition, Elastic stock has an Accumulation/Distribution Rating of A, which indicates more institutional buying than selling of shares.
