Elastic’s quarterly results actually beat Wall Street’s expectations. So why is the stock cratering?
Elastic (ESTC -26.49%) stock is plummeting Friday. The company’s share price was down 28.7% as of 3:05 p.m. ET, according to data from S&P Global Market Intelligence.
After the market closed yesterday, Elastic published results for the first quarter of its current fiscal year (which ended July 31). The enterprise search software company actually posted quarterly results that came in significantly ahead of Wall Street’s targets, but its forward guidance is causing panic.
Investors are looking past Elastic’s Q1 beats
Elastic posted non-GAAP (adjusted) earnings per share of $0.35 in Q1, beating the average analyst estimate for per-share earnings of $0.25. Revenue also beat Wall Street’s target, with sales of $347 million beating the average target by $2.39 million. Sales were up 18.1% year over year in the period, and adjusted earnings per share were up 40%. But it looks like momentum is poised to weaken as the year progresses, and management anticipates that sales will come in lower than it had initially forecasted.
Wall Street hates Elastic’s guidance revision
Elastic is now guiding for sales to come in between $1.436 billion and $1.444 billion this fiscal year. If the company were to hit the midpoint of that range, it would mean delivering annual growth of 14%. Prior to yesterday’s update, Elastic’s most recent guidance had suggested that the business would post revenue between $1.468 billion and $1.48 billion for the fiscal year — good for growth of roughly 16%. The average analyst estimate had expected the business to hit the top end of that guidance range.
Following the Q1 report, Bank of America published a note downgrading its rating on Elastic and cutting its one-year price target from $140 per share to $90 per share. BofA’s analysts pointed to higher risks of disruption and weak demand in international markets as reasons for the downward revisions.
On the other hand, management is guiding for an adjusted operating margin of roughly 12.5%, and it expects adjusted earnings per diluted share to come in between $1.52 and $1.56. The guidance range actually came in significantly better than the average Wall Street target for per-share earnings of $1.42. Risk-tolerant investors may want to take a closer look at the stock following today’s big pullback.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and Elastic. The Motley Fool has a disclosure policy.
