Data software company Elastic said generative artificial intelligence is boosting its sales as it reported better-than-expected fiscal second-quarter earnings. ESTC stock surged more than 30% in trading Friday.
In results reported late Thursday, Elastic said it earned an adjusted 37 cents per share on $311 million in sales for the quarter ending in October. On average, analysts polled by FactSet expected Elastic to earn 24 cents per share on $304 million in sales.
Sales climbed 16% year over year, with earnings rising from a break-even quarter last year.
For the current quarter ending Jan. 31, Elastic forecast $320 million in sales. Analysts were looking for $319 million, according to FactSet.
Elastic stock soared 37% to 110.20 on the stock market today. Analysts particularly liked the company's subscription sales growth. Wells Fargo upgraded the stock from equal weight to an overweight, or buy, rating following the earnings report.
Generative AI Boost
Elastic offers cloud-based search software for enterprise data, including security and observability solutions. Its Elasticsearch product allows enterprises to search across data sets and offers AI-powered insights.
The generative AI craze set off last year with the launch of ChatGPT has boosted interest in Elastic products, the company said. Generative AI applications are powered by large language models, computer algorithms based on massive data sets.
"Generative AI is driving a resurgence of interest in search as customers use semantic search, vector search, and hybrid search to ground large language models with their private business context, and Elasticsearch Relevance Engine provides the most comprehensive and enterprise-ready platform for these use cases," Chief Executive Ash Kulkarni said in a news release.
Total subscribing customers climbed 5% year over year to 20,700 for the quarter. About 1,200 of those customers pay more than $100,000 per year.
ESTC Stock: Cloud Sales Accelerate
Revenue from the company's Elastic Cloud offering climbed 30% year over year to $135 million.
Barclays analyst Raimo Lenschow said expectations for Elastic were tame heading into the report, with investors expecting year-over-year cloud sales growth similar to the 24% in the previous quarter.
"The improvement quarter over quarter here, coupled with management commentary around improving consumption trends, ultimately gives credence to the idea that Q1 was the bottom for cloud growth, and there is a path to continued higher growth in the long-term," Lenschow wrote. Lenschow maintained an overweight, or buy, rating for ESTC stock.
Along with the Wells Fargo upgrade, eight analysts raised their estimates for the company's fiscal third quarter revenue.
Separately, Elastic announced it had finalized its deal to acquire Opster, creator of AutoOps, a platform used to diagnose issues and improve performance of Elasticsearch. Financial terms were not disclosed.
ESTC Stock: Software Database Group Leader
ESTC stock has doubled in value this year, as of market close Friday.
With Friday's surge, ESTC stock gapped above a short cup base with heavy trading volume.
Heading into its earnings, Elastic ranked first out of 25 stocks in IBD's Computer-Software Database industry group, according to IBD Stock Checkup. Shares have a best-possible IBD Composite Rating of 99. The score means PDD stock currently tops 99% of all other stocks in terms of key performance metrics and technical strength.
Further, ESTC stock is on the IBD Tech Leaders list.
