IPO Watch – Elastic (ESTC)
Set to debut this Friday, October 5th, and with its lead underwriters Goldman Sachs, JPMorgan, Barclays, and RBC Capital, Elastic is a California-based search company with the ability to instantly find relevant information and insights from large amount of data.
Some examples the company provides, per its S-1, are when you hail a ride home from work with Uber, Elastic helps power the systems that locate nearby riders and drivers. When you shop online at Walgreens, Elastic helps power finding the right products to add to your cart. When you search across Adobe’s millions of assets, Elastic helps power finding the right photo, font, or color palette to complete your project. As SoftBank monitors the usage of thousands of servers across its entire IT environment, Elastic helps power the processing of terabytes of daily data in real time. All of this is search.
The company’s main product is the Elastic Stack, a powerful set of software products that ingest and store data from any source, and in any format, and perform search, analysis, and visualization in milliseconds or less. The Elastic Stack and its solutions are designed to run on premises, in public or private clouds, or in hybrid environments.
As shown in the image above, the Stack is comprised of four primary products:
Elasticsearch – Referred to as “The Heart of the Elastic Stack.” It is a distributed, real-time search and analytics engine and datastore for all types of data, including textual, numerical, geospatial, structured, and unstructured.
Kibana – The user interface for the Elastic Stack. It is the visualization layer for data stored in Elasticsearch. It is also the management and configuration interface for all parts of the Elastic Stack.
Beats – The family of lightweight, single-purpose data shippers for sending data from edge machines to Elasticsearch of Logstash.
Logstash – The dynamic data processing pipeline for ingesting data into Elasticsearch or other storage systems from a multitude of sources simultaneously.
The company generates revenue primarily from sales of subscriptions for its software. It offers various subscription tiers that provide different levels of access to paid proprietary features and support. Elastic’s subscription agreements for self-managed deployments typically have terms of 1 to 3 years and they bill for them annually in advance. Elastic Cloud customers may purchase subscriptions either on a month-to-month basis or on a committed contract of at least one year in duration. Subscriptions accounted for 93% and 90% of our total revenue in fiscal 2018 and 2017, respectively, while they accounted for 91% of total revenue in the three months ended July 31st, 2018.
According to its S-1 filing, it had over 5,500 customers, over 5,000 customers, and over 2,800 customers as of July 31st, 2018, April 30th, 2018, and April 30th, 2017, respectively. It defines a “customer” as an entity that generated revenue in the quarter ending on the measurement date from an annual or month-to-month subscription. Its customers represented 32% of the Fortune 500 and 21% of the Forbes Global 2000 as of July 31st, 2018.
The annual contract value, or ACV, of a customer’s commitments is calculated based on the terms of that customer’s subscriptions, and represents the total committed annual subscription amount as of the measurement date. Month-to-month subscriptions are not included in the calculation of ACV. The number of customers who represented greater than $100,000 in ACV was over 300, over 275, and over 150 as of July 31st, 2018, April 30th, 2018, and April 30th, 2017, respectively.
The chart below illustrates expansion by presenting the total ACV from each cohort over the company’s history. Each cohort represents customers who made their initial purchase from them in a given fiscal year. For example, the fiscal 2016 cohort represents all customers who made their initial purchase from Elastic between May 1st, 2015 and April 30th, 2016. This cohort increased their ACV from $20.6M as of April 30th, 2016 to $37.7M as of April 30th, 2018, representing a multiple of 1.8x over 2 years.