Elastic's Robust Q2 Performance And GenAI Adoption Fuel Analyst Optimism For Future Growth

Piper Sandler analyst Rob D. Owens reiterated the Overweight rating on Elastic N.V. ESTC and raised the price target from $84 to $105.

Elastic reported Q2 earnings of 37 cents per share, beating the analyst consensus estimate of 24 cents by 54.17%.

As hundreds of additional customers continue to adopt ESRE, the analyst is optimistic about future contributions from the GenAI-based solution.

According to Owens, the adoption of ESRE remains encouraging, with commentary noting hundreds of incremental customers utilizing the solution during Q2, including notable wins with DocuSign, Inc. DOCU and a video search platform.

The analyst notes that a meaningful contribution to revenue will likely come in F'25 and beyond, but early consumption trends are encouraging.

NRR ticked lower to 110% from 113% last quarter, though this downtick was attributed to the TTM nature of the metric as cloud consumption trends improved sequentially, the analyst adds.

F'24 revenue guidance was raised by $4 million at the midpoint, with management remaining prudent around forward consumption trends. 

Op. margin guide was raised by 25bps at the midpoint, noting incremental organic investment will continue given the increasing investment behind the GenAI opportunity.

For FY24, the analyst estimates revenues of $1.253 billion, with EPS of $1.15.

Oppenheimer analyst Ittai Kidron reiterated the Outperform rating on Elastic, raising the price target to $110.

The analyst writes that cloud consumption continues to improve despite the uncertain macro environment, and the company is seeing strong initial adoption of its GenAI solutions.

Looking ahead, Kidron sees Elastic to sustain its momentum as it helps customers consolidate observability and security spend and as adoption for GenAI increases, driving upgrades to higher price tiers and supporting consumption growth, and longer-term, a rebound in NRR.

While still early, the analyst highlights Elastic's strong position in addressing the large GenAI opportunity, which is viewed as a multi-year growth tailwind.

Overall, the analyst remains positive and believes the new product releases can drive and support positive momentum for consumption growth going into C2024.

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Price Action: ESTC shares are trading higher by 36.13% to $109.39 on the last check Friday.