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Rosenblatt increases Elastic NV shares target, buy rating on strong Q2 growth

EditorNatashya Angelica
Published 22/11/2024, 12:20
ESTC
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On Friday, Rosenblatt Securities adjusted its outlook on Elastic NV (NYSE: NYSE:ESTC) shares, increasing the price target to $130 from the previous $120, while maintaining a "Buy" rating on the stock.

Elastic recently reported second-quarter results that exceeded revenue expectations by approximately 3%, showcasing a year-over-year growth of 18%, or 17% in constant currency (CC). Notably, Elastic Cloud demonstrated a robust growth of 25% year-over-year, buoyed by significant customer consumption exceeding initial plans.

The upward revision in Elastic's price target is attributed to the company's recovery from the sales reorganization disruptions experienced in Q1, as well as its advantageous position from the rising demand for General Artificial Intelligence (GenAI) applications, which leverage its vector database features.

Elastic Cloud's adoption has been particularly strong, with 1,550 customers now utilizing the platform for GenAI, marking Search as the highest growing segment in the second quarter.

Elastic also disclosed the impending departure of its long-standing Chief Financial Officer, who is set to pursue another opportunity, with the process to find a suitable replacement currently underway.

In light of the recent quarter's performance, Elastic has revised its revenue growth forecasts upward by about 1% for both Q3 and the full fiscal year 2025. Moreover, the company now projects operating margins of 14% for FY25, an increase from the previously estimated 12.5%.

Following the Q2 report, Rosenblatt has slightly raised its forecast for Elastic, expressing optimism regarding the company's sales execution rebound and the growing interest in GenAI application development. The firm anticipates that Elastic's stock will experience a positive short-term response to these favorable results and the revised growth outlook.

In other recent news, Elastic NV reported robust financial growth, with a significant 18% year-over-year increase in total revenue for the second quarter of fiscal year 2025, reaching $365 million. This growth was largely driven by the company's generative AI segment, which saw customer commitments nearly double from the previous quarter, and a 25% year-over-year increase in cloud revenue, contributing to 46% of total revenue.

The company also disclosed an upcoming change in its executive team, with CFO Janesh Moorjani set to depart and Group VP of Finance, Eric Prengel, stepping in as interim CFO. DA Davidson, having noted these recent developments and strong consumption trends, has increased Elastic NV's stock price target by 53% to $115, while maintaining a neutral stance on the stock.

The company's future outlook seems positive as it raised its fiscal 2025 revenue guidance to between $1,451 million and $1,457 million. Non-GAAP operating margin is projected at approximately 13.5% and non-GAAP diluted earnings per share (EPS) expected to fall between $1.68 and $1.72. These recent developments reflect Elastic NV's strong performance and growth momentum in the recent period.

InvestingPro Insights

Elastic NV's recent performance and future outlook align with several key metrics and insights from InvestingPro. The company's market capitalization stands at $9.67 billion, reflecting its significant presence in the software industry. Elastic's revenue growth of 18.72% over the last twelve months supports Rosenblatt's observation of the company's strong performance, particularly in its cloud segment.

InvestingPro Tips highlight that Elastic has been delivering significant returns, with a 9.05% increase over the last week and an 18.52% gain over the past month. This aligns with Rosenblatt's expectation of a positive short-term stock response to the company's Q2 results and revised growth outlook.

However, investors should note that Elastic is trading at a high P/E ratio of 154.69, which InvestingPro Tips flag as potentially overvalued relative to near-term earnings growth. This high valuation might be justified by the company's strong position in the growing GenAI market, as mentioned in the article.

For those seeking a deeper analysis, InvestingPro offers 11 additional tips for Elastic NV, providing a more comprehensive view of the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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