| Author | Message | ||
     Entrepreneur Kurra Bewarse Username: Entrepreneur Post Number: 3921 Registered: 05-2011 Posted From: 24.164.46.35 Rating: N/A |
Elastic losses expand after announcing unexpected shakeup at the top (98.84 -15.26) Enterprise search and cybersecurity company Elastic (ESTC) is stretching lower after announcing a leadership shakeup and raising its outlook for Q3. With the stock selling off sharply today, it's apparent that the moves, including the promotion of Ashutosh Kulkarni to CEO, have caught investors off-guard. Preceding the CEO transition, which sends co-founder Shay Banon back to his former CTO role, shares of ESTC had tumbled by nearly 45% since mid-November. Whether the stock's recent demise has anything to do with this development is uncertain, but we'd argue that the weakness is mainly a function of a broader-based retreat from growth stocks, rather than any negative fundamental change at the company. Providing support to that assertion, ESTC now expects to exceed its prior outlook for Q3 revenue, non-GAAP operating margin, and non-GAAP net loss per share. This update indicates that quarterly revenue and EPS will surpass $209 mln and ($0.20), respectively, essentially equating to upside guidance. Given this bullish revision to ESTC's forecast, it seems surprising that the stock is diving lower. However, there are a few potential explanations for the weakness, including: ESTC has a track record of providing conservative guidance and then easily topping it when it reports earnings. In fact, that scenario has played out in at least the past three quarters. Therefore, the company is widely expected to exceed its guidance once again when it reports Q3 earnings in February, removing the surprise factor from last night's update. That puts the focus back on the leadership changes, which some investors may view as unsettling. Although the stock's recent performance doesn't reflect it, ESTC has been performing quite well, as illustrated by its steady 40-50% quarterly revenue growth and its impressive track record of upside earnings reports. On that note, ESTC has beaten analysts' top and bottom-line estimates in every quarter since it went public in October of 2018. Kulkarni is relatively new to ESTC, coming on board as its Chief Product Officer last year. That's not to suggest that he's not qualified for the role. Indeed, his prior management positions at McAfee (MCFE) and Akamia Technologies (AKAM) should make him well-suited to adjust to the promotion. The concern, though, is that a change of this magnitude could be disruptive from a sales, customer/partner relationship, and execution standpoint as the transition plays out over the coming months. Adding to the concern, ESTC's President of Worldwide Field Operations, Paul Appleby, is departing the company, with no explanation provided. With high growth tech stocks already out-of-favor, the sell-off resulting from ESTC's leadership shakeup is being amplified. Based on the company's strong growth and solid results, it seems that its trying to fix something that's not necessarily broken, which may be creating some angst among investors today. |