
Elastic files for an IPO - foolano
https://www.sec.gov/Archives/edgar/data/1707753/000119312518266861/d588632ds1.htm
======
calcsam
This is an extremely solid financial statement. $150M in revenue, growing
~100% per year; I'd project a valuation between $3B and $4B.

Twilio, Mulesoft, and MongoDB are probably the best comparables here -- open-
source and dev-tools based SaaS IPOs. All of these were very successful at IPO
and afterwards, and even compared to these, Elastic looks great.

* They're growing at almost 100% per year which is incredible. Twilio filed for IPO growing at 70% per year. Mulesoft was growing at 60%. Mongo was growing at 50%

* Losing $50M on $150M of revenue. (Net margins of -33%). This is pretty reasonable and in line with Twilio and Mulesoft. MongoDB was significantly worse at -60% net margins.

With that kind of growth I'd imagine something like a 220M ARR when they
actually IPO, and valuation of 15-20x that.

~~~
burnmaster
I see several responses that mention MongoDB for purposes of comparison and
seem to conclude Elasticsearch fares favorably.

It should be noted:

[1] Unlike MongoDB (which is a ground-up build), Elasticsearch is basically an
API layer on top of Apache Lucene. This is relevant because they haven't built
and don't maintain, control, or own the source of their primary IP.

[2] Unlike MongoDB (General Purpose) Elasticsearch is a single purpose
database and good at/used for one thing and one thing only. It searches text
fields for text.

So its potential use cases and thus marketshare is far more limited.

[3] Posts on stackoverflow with the tag:

elasticsearch × 34,253 mongodb x 103,478

~~~
AznHisoka
Elasticsearch is much more than a search engine.

Lots of people use it for analytics (checkout their aggregation/time series
queries) as well as analyzing huge logs. Some people are starting to use it
for machine learning use cases too.

~~~
barbecue_sauce
I have seen it used almost exclusively for logging as part of the Elastic
(formerly ELK) stack.

~~~
ryneandal
At my previous job we used it for a fair amount of analytics for our SaaS
clients.

------
chadash
Just to be clear, $100M is what they are looking to _raise_ , not their
valuation. Their last valuation was about $700M in 2014, so presumably, they
are looking for a valuation that exceeds that, most likely in the low
billions.

~~~
moxious
$100M is likely a placeholder amount. They're filing to go public and can
adjust that figure later, it's not that strange to do so. I don't think $100M
means much there, and relative to their overall valuation if $100M is all they
wanted they'd likely have other options.

------
whalesalad
> We have incurred losses in all years since our incorporation. We incurred a
> net loss of $52.7 million in fiscal 2018, $52.0 million in fiscal 2017 and
> $18.6 million in the three months ended July 31, 2018. As a result, we had
> an accumulated deficit of $233.4 million as of July 31, 2018.

Woah.

~~~
fh973
Is this a data point for how well the open source business model works?

Or are they just unnecessarily bloated?

~~~
ncmncm
If you aren't incurring losses, it means you are throwing away potential
income by growing too slowly, and inviting competitors to take up the slack.

In case of a market or tech hiccup, you might find yourself without
"sufficient cash flow", and collapse, but that would be the investors'
problem. The investors are assumed to be able to absorb the loss and
disappointment without undue discomfort, and so they are. Risk to your dreams
takes last place.

~~~
munk-a
I understand a lot of silicon valley is funded in this manner right now but
please re-read this command and realize how silly it is. It's proper to say
that taking a loss for long term gain is sometimes the right measured decision
but saying that failing to lose money constantly is a failure is just
ridiculous.

~~~
ncmncm
There might be a reason why you are not asked to manage a growing business.

------
artellectual
Elastic is a company I’ve been following from the start when they just had
elasticsearch opensource project. Watching this company grow to this point has
been inspirational. I really want to meet / talk to the people who made this
company. They made open source work.

I’m happy to use their products, filebeat, kibana, elasticsearch, and their
cloud offering has been top notch. They got a lot of things right.

Now elasticsearch even supports SQL as a query language.

This is a company that you don’t hear often in the news, but they just kept
their focus and shipped the goods.

As you can tell by now I’m a hardcore fan of Elastic.

~~~
ousta
i would be surprised if they were supporting sql as query language. do you
mean by using spark sql?

~~~
vquemener
Actually, they really do support SQL as a query language :
[https://www.elastic.co/en/blog/an-introduction-to-
elasticsea...](https://www.elastic.co/en/blog/an-introduction-to-
elasticsearch-sql-with-practical-examples-part-1)

~~~
ousta
yeah a "subset of SQL" and on the page you gave me 0 example of a JOIN. so no
JOIN no SQL sorry

~~~
AtlasBarfed
"We support SQL on our distributed data platform" has to be the new big lie of
distributed systems salespeople.

I'm not saying that computing joins, aggegates, sorts, etc can't be done in a
distributed fashion, it just takes time, a lot of network
reliability/reattempts, and understanding of the approximate nature of results
if there are ongoing "eventually consistent" updates rolling through the
cluster(s).

~~~
ousta
well you cannot have a search engine query time + a SQL layer at least not at
DB speeds

------
aventrix
Interesting. My initial instinct is to compare them to MongoDB which IPO'd
about a year ago. They seem to be doing quite well since, but then again, who
hasn't in the tech sector?

I will say I very much enjoy Elastic's suite of products, I can't say the same
for MonogoDB.

~~~
hendzen
There are key differences between MongoDB and Elastic.

MongoDB (the company), has been very strategic about defending themselves from
Amazon. Likely due to the AGPL licensing on MongoDB (the database), Amazon
doesn't offer a hosted MongoDB - you have to buy MongoDB Atlas which runs on
multiple cloud providers, including AWS, GCP and Azure. Coincidentally, Atlas
subscriptions are the fastest growing part of MongoDB Inc's revenue, which is
why investors are bullish on the company.

Elastic (Apache licensed) has actually had their lunch eaten by Amazon to a
much larger degree. Many businesses are purchasing hosted ES instances
directly from Amazon via Amazon Elasticsearch service. The problem is bad
enough that Elastic Inc had to write a marketing blog post about it [0].

Say what you will about MongoDB (the database), but MongoDB Inc. is the most
successful open source software-based company since Red Hat. You can see it in
the outperformance of $MDB compared to similarly timed open-source IPOs such
as Hortonworks ($HDP) and Cloudera ($CLDR).

[0] - [https://www.elastic.co/blog/hosted-elasticsearch-services-
ro...](https://www.elastic.co/blog/hosted-elasticsearch-services-roundup-
elastic-cloud-and-amazon-elasticsearch-service)

~~~
toomuchtodo
> Elastic (Apache licensed) has actually had their lunch eaten by Amazon to a
> much larger degree. Many businesses are purchasing hosted ES instances
> directly from Amazon via Amazon Elasticsearch service. The problem is bad
> enough that Elastic Inc had to write a marketing blog post about it [0].

Also the reason Redis Labs made the controversial decision to change their
licensing (and they reference Elastic in it) [1].

[1] [https://redislabs.com/blog/redis-license-bsd-will-remain-
bsd...](https://redislabs.com/blog/redis-license-bsd-will-remain-bsd/)

> Cloud providers have been taking advantage of the open source community for
> years by selling (for hundreds of millions of dollars) cloud services based
> on open source code they didn’t develop (e.g. Docker, Spark, Hadoop, Redis,
> Elasticsearch and others). This discourages the community from investing in
> developing open source code, because any potential benefit goes to cloud
> providers rather than the code developer or their sponsor.

~~~
busterarm
A big part of it is Elastic's fuckup.

It's a big deal for a lot of companies to be able to pay the cloud bill in one
place. Elastic used to provide the availability to pay for the Elastic cloud
subscription through AWS' Marketplace. Elastic stopped this when they changed
their pricing at the beginning of 2017 and we (my last employer) were
negotiating a contract with them at the time. AWS billing was a hard
requirement for us because it made it a lot easier on us from the finance
side. We walked and I know a lot of others who did too.

~~~
toomuchtodo
It’s not Elastic’s fault your accounts payable process is deficient.

~~~
busterarm
I'd be surprised if even 20% of companies' accounts payable process is
sufficient.

The point is that AWS removes friction and Elastic chose to add friction.
They're chasing big Enterprise hard and it doesn't seem to be working out.

~~~
toomuchtodo
It’s a business decision of course. Forge your own path or be beholden to your
revenue model dictated by AWS.

Big Enterprise will not require billing through AWS (disclaimer: employed at a
large enterprise, buying ~$900k software license currently). They’ll have an
accounts payable department, a procurement process, and someone to cut a check
or ACH to Elastic monthly/annually.

~~~
busterarm
It wasn't the way they did billing, it was just an option. One they've
removed. I get it, I'm just saying it cost them some money.

~~~
toomuchtodo
I totally get that. _I don 't dispute that_. But if you must choose between
"please sir, can I have some more?" and controlling your own revenue destiny,
it is clear why some would choose the later.

Would you want to be beholden to AWS' whims? You might as well be a Walmart
supplier at that point, constantly dragged out to Bentonville having to make
your case for every penny of your costs. Amazon has proven its model (all
about scale), how it operates (your margin = our opportunity), and you partner
with them at your own peril.

I'm suggesting the thought process to shift from, "Ahhh, those Elastic guys
and their bad decisions!" to "Hmm, well, tough decision to make [forgoing
revenue through AWS] but I understand why they made it".

~~~
busterarm
I had already acknowledged that though.

~~~
toomuchtodo
My apologies then; I did not pick up on that from your comments.

------
ggm
We pay them money but I have to say.. there are aspects to the model which
_freak me out_ -Like the relative paucity of good R hooks, the abortive
attempt at an interface via dplyr basically died. Right now, its curl. Its
http sucking and no real way past pagination.

Or, how hard it can be to intuit the json you need, as a naieve user. Back
porting from kibana is silly.

Or how easily you can deploy a naieve cluster which hangs bigtime on large
data. This thing is like PostGres and ZFS: you really can't fake it, you have
to understand it.

I see good potential in Elastic _training_

------
jacobkg
Elastic’s signature product is ElasticSearch. They also make Kibana and
Logstash

[https://www.elastic.co](https://www.elastic.co)

------
bratao
For anyone that for any reason is looking for an alternative to
ElasticSearch/Solr: Try Vespa.ai

The feature of live node removing/adding alone made my life so much easier.
The performance and Machine Learning ranking is the icing on the cake!

~~~
linkmotif
You mean there’s no refresh delay?

~~~
bratao
Oh yes! "Vespa is designed to be real time so once you your document has been
accepted it is live in search. You can control visibility-delay which by
default is 0: [http://docs.vespa.ai/documentation/reference/services-
conten...](http://docs.vespa.ai/documentation/reference/services-
content.html#visibility-delay) "

~~~
linkmotif
Yes very interesting thanks for sharing. Have you used in production? Have you
used the change steam functionality?

------
xaranke
Is it just me, or does 33 pages of risk factors seem pretty high?

~~~
chadash
I used to put together deal documents similar to this when I worked in
finance. It was literally my job to think about potential risks and then list
them out.

"Hey boss, this investment has _possible_ earthquake risk, but that seems very
remote; do I have to put that in?"

"Yeah, put it in. No one reads the document anyway unless it goes to court and
in that case, you can get dinged for leaving _out_ stupid risk factors, but
not for having them in."

~~~
paxy
Exactly. Serious investors aren't going to look at this list, but rather do
their own research. This is basically to protect against lawsuits.

------
softliving
I like to see open source backers going public, they give a boost to open
source community who want to share but do not want to just spend energy where
they cannot get something out of it (money/fame/recognition or just a
satisfaction of doing good). I am sure the people are proud of their work.
Good luck with the IPO!

------
tschellenbach
Anyone figure out which product/services are driving the majority of this
revenue?

------
trhway
Interesting that JOBS act took so much care about executive compensation :

"

Implications of Being an Emerging Growth Company

We are an “emerging growth company” as defined in the Jumpstart Our Business
Startups Act of 2012, or the JOBS Act. An emerging growth company may take
advantage of specified reduced reporting requirements that are otherwise
applicable generally to public companies. These reduced reporting requirements
include:

the requirement to present only two years of audited financial statements and
only two years of related management’s discussion and analysis in this
prospectus;

an exemption from compliance with the auditor attestation requirement on the
effectiveness of our internal control over financial reporting;

reduced disclosure about our executive compensation arrangements; and

an exemption from the requirements to obtain a non-binding advisory vote on
executive compensation or shareholder approval of any golden parachute
arrangements."

~~~
eecc
I guess it’s clear whose JOB the act is all about ;)

------
wallflower
And it all started with Shay Banon attempting to build a cooking app for his
wife who was a chef.

> JAXenter: You started Compass, your first Lucene­-based technology, in 2004.
> Do you remember how and why you became interested in Lucene in the first
> place?

> Shay Banon: Reminiscing on Compass birth always puts a smile on my face.
> Compass, and my involvement with Lucene, started by chance. At the time, I
> was a newlywed that just moved to London to support my wife with her dream
> of becoming a chef. I was unemployed, and desperately in need of a job, so I
> decided to play around with “new age” technologies in order to get my skills
> more up­to­date. Playing around with new technologies only works when you
> are actually trying to build something, so I decided to build an app that my
> wife could use to capture all the cooking knowledge she was gathering during
> her chef lessons.

> I picked many different technologies for this cooking app, but at the core
> of it, in my mind, was a single search box where the cooking knowledge
> experience would start a single box where typing a concept, a thought, or an
> ingredient would start the path towards exploring what was possible.

> This quickly led me to Lucene, which was the defacto search library
> available for Java at the time. I got immersed in it, and Compass was born
> out of the effort of trying to simplify using Lucene in your typical Java
> applications (conceptually, it simply started as a “Hibernate” (Java ORM
> library) for Lucene).

> I got completely hooked with the project, and was working on it more than
> the cooking app itself, up to a point where it was taking most of my time. I
> decided to open source it a few months afterwards, and it immediately took
> off. Compass basically allowed users to easily map their domain model (the
> code that maps app/business concepts in a typical program) to Lucene, easily
> index them, and then easily search them.

> That freedom caused people to start to use Compass, and Lucene, in
> situations that were wonderfully unexpected. Imagine already having the
> model of a Trade in your financial app, one could easily index that Trade
> using Compass into Lucene, and then search for it. The freedom of searching
> across any aspect of a Trade allowed users to convey this freedom to their
> users, which proved to be an extremely powerful concept.

> Effectively, this allowed me to be in the front seat of talking and working
> with actual users that were discovering, as was I, the amazing power that
> search can have when it comes to delivering business value to their users.
> Oh, and btw, my wife is still waiting for that cooking app. Now, 10 years
> later, it is the basis of Elasticsearch.

[https://jaxenter.com/elasticsearch-founder-
interview-112677....](https://jaxenter.com/elasticsearch-founder-
interview-112677.html)

------
purplezooey
Does this mean more Big Data IPOs coming? A few good private ones have been
close.

------
setheron
Tl;Dr; should I buy?

------
mywittyname
They have a 75% profit margin. $120mm profit from $160mm in revenue.

~~~
hendzen
You are misreading the financials. 120m is cost of revenue, not profit. They
had a 52mm net loss in the last year ending April 30th.

~~~
mywittyname
Thanks

------
tomputer
Slightly off topic: this quote from the SEC filing document:

 _" Immediately prior to the completion of this offering, we intend to change
our corporate form from a Dutch private company with limited liability
(besloten vennootschap met beperkte aansprakelijkheid) into a Dutch public
limited company (naamloze vennootschap) and change our corporate name from
Elastic B.V. to Elastic N.V."_

As far as I know, Elasticsearch has no headquarters or offices in The
Netherlands. I assume the company is only registered in The Netherlands for
tax avoidance.

If my assumption is true, despite that I like their products, this makes me a
little sad.

EDIT: my bad. I missed the tab Europe and Asia. They do seem to have an office
in Amsterdam.

~~~
chadash
> _As far as I know, Elasticsearch has no headquarters or offices in The
> Netherlands._

According to their contact page, their European headquarters are in Amsterdam
([https://www.elastic.co/contact](https://www.elastic.co/contact)), so they do
seem to have some kind of presence there. And if you look at their careers
page, it seems that most of their engineering team is distributed/remote.

~~~
tomputer
I edited my post. Missed those tabs. Thanks!

