ElasticSearch

Company

Elasticsearch is a search company that created the Elastic Stack and offers software solutions built on the stack.

Products

ElasticStack (Free + opensource)

  • Elasticsearch
  • Kibana
  • Beats
  • Logstash

Elastic Enterprise Search

  • workplace search, app search and site search

Observability

  • logs, metrics and APM traces

Security

  • SIEM, endpoint and threat hunting
  • XDR

ElasticCloud

  • managed elastic service
  • Azure, AWS, AWS (GovCoud) and GCP supported
  • FedRAMP supported

Business Model

In Feb 2021, ESTC changed the license of Elasticsearch and Kibana under Elastic License 2.0 to protect against cloud service providers that were repackaging the open source development.

ESTC offers various paid subscription tiers that provide different levels of right to use proprietary features and access to support.

ESTC chargers per resource usage instead of per query/per user. For example, a customer could pay for 4 clusters on AWS for elasticsearch, 1 cluster for workplace search and 1 cluster for Kibana and only pay for resource usage.

  • Elastic Cloud (32% of revenue)
    • Q3: 61M (+90% YoY)
    • 1-3 years
    • 92-94% subscription revenue
  • Other subscription (60% of revenue)
    • Q3: 115M (+30% YoY)
  • Professional Services
    • Q3: 15M (+112% YoY)

Revenue

  • License – self-managed: $16M (+8%) YoY
  • Subscription – self-managed and SaaS: $160M (+50% YoY)
  • Total subscription – $177M (+46% YoY)
    • Elastic Cloud Revenue: $61M
  • Total cost of revenue: $50 M (+47% YoY)
    • Cost of subscription and overhead
    • Cloud hosting costs and customer support costs
    • Cost professional services is costs of training, implementation and other professional service
  • Gross profit Q3: $143M (+52% YoY)
  • Total revenue for F22: $808-814M

 

  • 2025 Plan: $2B revenue

Core Business Metrics

  • 16,000 subscription customers
  • >780 customers with >$100,000 ACV (23% YoY)
  • Net dollar retention: 130%
  • Gross profit Q3: $143M (+52% YoY)

Competitors

  • Opensource Search
    • Lucene, Solr
  • Cloud Hosting
    • AWS, GCP, Azure
  • Algolia
    • more out of box than ES but scaling can be difficult

Analysis

Personally as a software engineer working on search, I have found Elasticsearch to be on the most useful tools for information retrieval that can work well for 95% of use cases. Elasticsearch has built a great set of tools that developers NEED to have in their environment.

Elasticsearch charges per resource usage even for their advanced set of SaaS tools built on the stack. I believe they should be charging much more for the advanced functionality as the value it provides is MUCH higher than the what the customer pays for in resource. If Microsoft were only to charge per resource for their office suite, they would have a much lower market cap. I think it could also make budgeting difficult as Workplace Search as a business application may be a different department than Elasticstack hosting and infrastrucuture spend.

I would like to see a more finegrained breakdown of ESTC segment offerings to see customer adaption and usage of the newer applications built on top of the Elasticstack.

At current valuations, Elasticsearch is undervalued (15B, 18x multiple) for a tech stock with its current growth rate (44%) and revenue ($800M) compared to peers with similar fundamentals: Okta (40B, 31x multiple) and Mongodb (34B, 42x multiple). I believe Elasticsearch has massive upside to 2-3x when the market wakes up.

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