Thanks for posting these. These numbers and loss margins seem typical for a company in this line of service (cloud or self-hosted distributed databases or data services.) See similar recent IPOs for MongoDB, Cloudera and Hortonworks.

Another useful section related to revenue in the paragraph just before the one you posted:

> As of July 31, 2018, we had over 5,500 customers across over 80 countries and in a wide range of industries, compared to over 5,000 and 2,800 customers as of April 30, 2018 and 2017, respectively. Our revenue was $159.9 million and $88.2 million in fiscal 2018 and 2017, respectively, representing year-over-year growth of 81% for fiscal 2018. Our revenue was $56.6 million and $31.6 million in the three months ended July 31, 2018 and 2017, respectively, representing period-over-period growth of 79%. Subscriptions accounted for 93% and 90% of our total revenue in fiscal 2018 and 2017, respectively. Subscriptions accounted for 91% of our total revenue in the three months ended July 31, 2018. In fiscal 2018, revenue from outside the United States accounted for 39% of our total revenue.

Yes. You don’t get 80% growth at that scale without spending some money!

The formula for SaaS companies is generally growth + net margin should equal 40%. If they’re growing 100%, even a negative 50% margin leaves them in the clear by 10%.

>"The formula for SaaS companies is generally growth + net margin should equal 40%."

Can you say exactly what formula this is and what is a formula for?

Also what is the significance of the number 40 as a target?

40% rule for SaaS: https://www.feld.com/archives/2015/02/rule-40-healthy-saas-c...

Beambot has the source. The general idea is its ok to lose Money if your net (growth minus losses) is higher than your cost of capital. (VC money expects a 30-50% rate of return) In general SaaS companies have high fixed costs so it’s a race to get big enough to cover them. The rule of 40 flags companies that are too unprofitable or not growing fast enough.

Like all financial metrics (PE ratio, etc) it’s still just a crude guide.

Thanks this link and explanation were really helpful.

Pretty normal for a growth company at this stage.

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

Or are they just unnecessarily bloated?

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.

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.

Well in their case if they had to they could axe most of their sales and marketing spending, and become cash flow neutral and survive a hiccup.

No, this is a healthy high growth SaaS company.

Elastic is not predominantly a SaaS company. It's part of the play, but not the main source of their revenue.

I think they are transitioning from license/support to SaaS. Also looking at their statement SaaS is taking over in revenue. License 25 Million, subscriptions 123 Million in FY 18.

Subscriptions do not imply SaaS, though Wall Street often equates the two. It’s just a different licensing model that’s replacig the up-front perpetual license + 25% annual maintenance that is the old school enterprise software model.

The majority of that subscription revenue (they make this clear in other statements in the S-1) is enterprise deals running Elasticsearch & Friends on enterprise datacentres or clouds where Elastic isn’t providing a managed service - they’re providing traditional enterprise software support.

This isn’t unique to Elastic. Splunk, Pivotal, Mongo, MuleSoft, all are similar. Wall Street mostly cares about the revenue model, but there’s a nuance to it.

Subscription was the bulk of their revenue, over licensing and services...

Subscription includes on-premise installations; it’s just another licensing model. It is common to move away from perpetual license up-front followed by maintenance models to a more spread-out revenue model and better predictability for Wall Street (plus potentially better quarterly deal volitility insulation because of more deferred revenue, especially if they’re doing up-front multi-year subscriptions).

They also say that the majority of their revenue is from enterprises running their own instances.

Anyway, the point is mostly moot for an investor, but it is interesting as a technical person to observe that many SaaS plays aren’t entirely or even mostly *aaS, they’re open source software sold as enteprise software subscriptions (priced at enterprise or SaaS levels too, not a bargain basement OSS support contract)