Elastic N.V. focuses on growth and profitability in competitive market
2023-08-01
The company's earning call meeting focused on its strategy for seeking technology tuck-ins and its commitment to growth, profitability, and long-term success. The CEO mentioned that the company's win rates for its three products have remained unchanged, indicating a stable competitive position. The company leads in log analytics for observability, SIEM for security, and enterprise search for new accounts, suggesting a strong market presence in these areas.
However, when expanding with existing customers in the XDR space, the company faces competition from established vendors. To overcome this, the company leverages its advantage in log analytics and existing customer relationships to introduce the concept of endpoint protection through the same agents used for data ingestion in SIEM.
The company's market outlook summary indicates that there have been no significant changes in customer sentiment in November. They remain confident about their outlook for the second half of the year and have adjusted their guidance accordingly. The company has decided to prioritize profitability over growth and has implemented a force reduction. This decision was based on market data and the macroeconomic environment. The small and medium-sized business segment has been most affected, with the company's sales-assisted motion not generating satisfactory returns. However, they see long-term opportunities in the enterprise side. The company has made changes to its go-to-market strategy, focusing on digital demand generation and investing in cloud and serverless solutions. Their goal is to drive growth and profitability by targeting specific strategic areas.
The company's plans for product/service include focusing on making complex search functionality accessible and scalable across different use cases and segments. They also aim to optimize their coverage in the SMB segment by emphasizing automation and low-touch approaches, while repurposing some investment towards enterprise sales coverage. Additionally, they plan to invest in priorities such as serverless architecture and engineering, digital demand, and marketing. The company has set a specific goal of achieving a non-GAAP operating margin of 10% for fiscal '24, and the actions announced are expected to help achieve this goal. They believe that their solutions, which are used in core mission-critical use cases, align well with customers' increasing desire for dual consolidation. The company also highlights their consumption-based business model and resource-based pricing model as providing customers with flexibility.
The CEO mentioned that there have been no changes in win rates or competitive pressure across their three products. The company tends to lead in log analytics for observability, SIEM for security, and enterprise search when acquiring new accounts. However, when expanding with existing customers, they may face competition from vendors in the XDR space. In terms of observability, the company competes well in log analytics and expands into other areas like APM. Overall, the CEO stated that the competitive environment has not changed in any meaningful way.
For the third quarter of fiscal '23, the company expects total revenue to be in the range of $272 million to $274 million, representing a 22% year-over-year growth at the midpoint. On a constant currency basis, they anticipate a total revenue growth of 26% year over year at the midpoint. The non-GAAP operating margin is expected to be in the range of 4.3% to 4.7%, and non-GAAP earnings per share are projected to be in the range of $0.04 to $0.07.
For the full fiscal '23, the company expects total revenue to be in the range of $1.067 billion to $1.073 billion, representing a 24% year-over-year growth at the midpoint. On a constant currency basis, they anticipate a total revenue growth of 28% year over year at the midpoint. The non-GAAP operating margin for the full fiscal '23 is also expected to be positive.
The participants of the call included key executives such as the CEO, CFO, and VP of Investor Relations, as well as analysts from various financial institutions. The company expressed confidence in their approach and highlighted their commitment to continued growth and innovation.
In response to the challenging macroeconomic climate, the company is implementing measures to navigate through the difficult environment. They are experiencing belt-tightening and slowing consumption in the SMB segment, as well as increased scrutiny on deals due to adverse conditions caused by the strengthening U.S. dollar in certain countries. To support their customers, the company emphasizes the importance of staying close to them and consolidating onto a single platform for multiple business-critical use cases. They also plan to be more focused on coverage, sales, product investments, and internal support to drive operational excellence. As a result, the company will reduce their workforce by 13% to align their investments with strategic priorities. They will rebalance investments across all functions and reinvest some of the savings selectively in areas that will drive profitable growth. The company also highlights their focus on automated low.
Overall, the meeting showcased the company's strategic approach to leveraging its strengths and existing customer base to expand into new areas. The company remains confident in its market outlook and is focused on driving growth and profitability through targeted strategies and investments.