On Friday, Baird downgraded Elastic NV (NYSE:ESTC) stock from Outperform to Neutral and slashed the price target to $95 from $135.
The decision followed the company's reported difficulties in meeting its sales commitments for the first quarter, with billings falling short by approximately 7 points. Baird noted that the initial overestimation of the impact of go-to-market (GTM) changes led to the downgrade.
The firm pointed out that Elastic's management is currently taking steps to address these issues. However, the timeline for recovery is unclear, with expectations set for at least a few quarters. Consequently, management has conservatively revised its full-year guidance downwards in light of these challenges.
Despite the downgrade, Baird acknowledged that Elastic's business still has positive aspects. These include the adoption of its GenAI technology, the potential for platform consolidation, and the preservation of its long-term prospects. However, the near-term risks associated with the company's sales execution have prompted a more cautious stance from the analyst firm.
Baird emphasized the need for improved consistency in Elastic's execution before reassessing its position. The firm's current neutral rating reflects the uncertainty surrounding the company's ability to resolve the sales execution issues quickly.
In other recent news, Elastic N.V. reported Q1 adjusted earnings per share of $0.35, surpassing analyst estimates of $0.25. The company's revenue grew 18% year-over-year to $347 million, slightly over the $344.66 million consensus.
Elastic Cloud revenue also increased by 30% YoY to $157 million in Q1, accounting for 45% of total revenue. The firm concluded the quarter with over 1,370 customers with annual contract value above $100,000.
However, Elastic's revenue outlook fell short of expectations. For Q2, the company projected revenue of $353-355 million, below the $360.8 million analyst consensus. The full-year fiscal 2025 revenue guidance of $1.436-1.444 billion also fell short of the $1.478 billion Street estimate.
Despite the revenue guidance miss, Elastic raised its full-year adjusted EPS outlook to $1.52-$1.56, above the earlier $1.42 consensus. CEO Ash Kulkarni stated that while the company delivered solid first-quarter results, the volume of customer commitments was impacted by segmentation changes made at the beginning of the year, which are taking longer than expected to settle. These are the recent developments for Elastic N.V.
InvestingPro Insights
Amidst the concerns highlighted by Baird, Elastic NV (NYSE:ESTC) presents a mixed financial landscape. On a positive note, an InvestingPro Tip points out that Elastic holds more cash than debt on its balance sheet, indicating a degree of financial stability that could be reassuring to investors. Additionally, analysts predict the company will be profitable this year, aligning with the company's efforts to address its sales execution challenges.
However, the company's valuation metrics suggest caution. With a P/E ratio of 166.25 and an adjusted P/E ratio for the last twelve months as of Q4 2024 at 157.26, Elastic is trading at a high earnings multiple. This is further substantiated by its high Price/Book multiple of 14.43, which may raise questions about the company's valuation relative to its tangible assets.
InvestingPro Data also shows that Elastic has experienced substantial revenue growth of 18.55% over the last twelve months as of Q4 2024, which may support the company's long-term prospects mentioned by Baird. Yet, the company's high valuation multiples may not fully reflect near-term earnings growth, as suggested by the PEG ratio of 1.39 for the same period.
For investors seeking a deeper analysis, additional InvestingPro Tips are available, providing a more comprehensive view of Elastic NV's financial health and market performance. In total, there are nine more tips listed on InvestingPro, offering valuable insights for those considering an investment in Elastic.
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