Elastic, a search-focused software-as-a-service (SaaS) company filed to go public today. The Mountain View-based company was founded in 2012 and raised just over $100 million as a private company.
Follow Crunchbase News on Twitter
Its debut comes amidst a strong year for tech IPOs. The resurgence in flotations comes after several dry years for public-market liquidity, at least for venture-backed startups.
Elastic, which counts Index, Benchmark, New Enterprise Associates, and SV Angel as investors, intends to list on the New York Stock Exchange under the ticker symbol “ESTC.”
The company’s S-1 filing includes a $100 million placeholder fundraising figure. We’ll get a better understanding of how much the company actually intends to raise when it sets a price range.
Now let’s take a look at the numbers.
Unprofitable Growth
At the highest level, Elastic is growing quickly at the cost of growing GAAP (inclusive of all costs) losses. However, the firm generates cash, so investors may be willing to weight its growth more than its widening deficits.
In the year-long period ending April 30, 2017, Elastic recorded $88.2 million in total revenue, $79.7 million of which fell under the “subscription” moniker, according to the firm. Those sums grew 81.3 percent and 87.5 percent in the year-period ending April 30, 2018 to $159.9 million and $149.4 million respectively.
In its most recent quarter, the period ending July 31, Elastic posted $56.6 million in total revenue ($51.6 million from subscriptions), up from $31.6 million ($29.4 million subscription-sourced) in the year-ago quarter.
All that growth came at a cost. Elastic lost $18.6 million in its most recent quarter, up from $10 million in the year-ago period. In each of the years ending April 30, 2017 and 2018 the company lost around $52 million.
However, the firm’s free cash flow grew to $4.8 million in the most recent quarter from $456,000 in the comparable year-ago period. Not bad. Elastic is sitting on around $51.1 million in cash.
SaaS Metrics
So how is Elastic growing as quickly as it is while generating cash? It’s the SaaS holy grail: revenue expansion without cash burn implies an effectively infinite runway, allowing the firm in question to invest in itself without selling pounds of flesh to hungry external investors.
In Elastic’s case, the answer is relatively simple. Its customers spend more money over time. The company’s “net expansion rate,” a way to track growth in customer spend is weighted over a 12 month period and is inclusive of customer churn.1 Per the firm, it’s a very high figure: “Our Net Expansion Rate was 142% as of July 31, 2018 and was over 130% at the end of each of our last seven fiscal quarters.”
When it has a customer base that depends on its technology and spends more with the firm over time, Elastic can at once afford to pay more to acquire customers and generates top-line expansion more cheaply than SaaS firms that have to buy their growth more dearly.
All told, the Elastic S-1 is a pretty clean looking document. Notably, Amazon shows up as both partner (page 118), and a competitor (page 124). As CNBC notes, Amazon has a competing product called Elasticsearch.
More when it prices.
Here’s what the firm says: “To calculate an expansion rate as of the end of a given month, we start with the actual cash value (ACV) from all such customers as of twelve months prior to that month end, or Prior Period Value. We then calculate the ACV from these same customers as of the given month end, or Current Period Value, which includes any growth in the value of their subscriptions and is net of contraction or attrition over the prior twelve months. We then divide the Current Period Value by the Prior Period Value to arrive at an expansion rate. The Net Expansion Rate at the end of any period is the weighted average of the expansion rates as of the end of each of the trailing twelve months.↩
Stay up to date with recent funding rounds, acquisitions, and more with the Crunchbase Daily.
67.1K Followers