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ESTC – Market expectations are for a positive Uniform ROA inflection, but management may have concerns about Elastic Cloud, Observation solution, and free cash flow margin

December 1, 2020

  • Elastic N.V. (ESTC:USA) currently trades near historical highs relative to UAFRS-based (Uniform) assets, with a 21.5x Uniform P/B. At these levels, the market has expectations for profitability to positively inflect, but management may have concerns about Elastic Cloud, Observation solution, and free cash flow margin guidance
  • Specifically, management may lack confidence in their ability to meet their 2021 free cash flow margin guidance and take advantage of market opportunities. In addition, they may be exaggerating Elastic Cloud’s scalability, and the Security solutions’ capabilities. Furthermore, management may have concerns about the potential of their new unified agent, their pipeline’s progress, and their clients’ spending trends. Moreover, they may lack confidence in their ability to make the Observability solution more attractive to clients and win more government clients. Additionally, they may be exaggerating the strength of their results in a tough environment. Finally, management may be concerned about Enterprise Search solution’s pricing system and may lack confidence in their ability to prevent network outages