Elastic Not Immune to Macro Headwinds Indicated by Laying Off 13% of Workforce; FVE to $62

We are lowering our fair value estimate for Elastic to $62 from $100 as we rethink the firm’s growth prospects following its decision to lay off 13% of its employees. While management’s goal with the reduction-in-force, or RIF, is to rebalance its investments to focus on areas of growth, we fear that the substantial reduction in personnel may also limit Elastic’s ability to capture new customers. Additionally, we are concerned that, in the near term, Elastic’s clients will rein in certain spending as they optimize costs in a challenging macroeconomic environment. With shares trading around $52 after earnings, we would recommend investors seek a larger margin of safety to invest in the Very High Uncertainty-rated name.