One of the biggest stories across technology remains artificial intelligence adoption. Initially, the AI revolution centered on building the infrastructure necessary to train and operate AI solutions. More recently, the focus is shifting toward AI business solutions that can boost productivity and efficiency.
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The trend toward using AI for business insight is a big tailwind, and Elastic NVÂ (ESTC) Â is one of the beneficiaries. After reporting surprising quarterly results, Elastic’s stock price surged 14% in early trading on February 28.
What’s going on with Elastic stock?
The company markets products that help companies capture, analyze, and visualize data. Elastic’s ability to improve data insight on cloud, private and hybrid networks has led many to label it the Google of corporate search.Â
The company makes most of its money via subscriptions, a recurring revenue model that provides cash flow clarity and historically high margins.
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In the fourth quarter, revenue of $382 million surged 17% higher from one year ago. The company also experienced significant earnings leverage, given earnings per share of 63 cents, up 75% year over year.Â
The figures were solid enough to surprise Wall Street analysts, who estimated revenue of about $369 million and 47 cents per share.
The company’s Cloud business grew 26% year-over-year to $180 million. Elastic’s customer count grew to 21,350 from 20,800 one year ago, while the number of customers with contracts worth over $100,000 increased to 1,460 from 1,270.
Management also noted that its business with existing customers is expanding. The net expansion rate, which measures growth in revenue at existing customers, was 112%.Â
What could happen to Elastic next?
Elastic reports on a fiscal calendar ending April 30. That means we’re currently in its fiscal fourth quarter.Â
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Management is guiding fiscal Q4 revenue between $379 million and $381 million, up 13% year-over-year at the midpoint and 16% revenue growth for the fiscal year.
“Part of what is fueling those wins is the shift in enterprise spending toward AI,” said long-time fund manager Chris Versace in a TheStreet Pro post. “As the company continues to scale its subscription revenue and benefits from higher AI pricing as well as high incremental margins associated with software, we would see operating leverage take hold.”
Currently, 18.5% of customers with contracts valued at over $100,000 are generative AI customers, up from 10.9% over roughly the past year.Â
“To us, that is a clear signal its enterprise customers are adopting AI to drive a combination of productivity and improved customer experiences. For Elastic, that means price recognition and margin expansion,” said Versace.
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