Greenhaven Road Capital, an investment management firm, published its first-quarter 2022 investor letter – a copy of which can be downloaded here. The Fund returned approximately -26.5% net in the first quarter. Individual returns will vary by class and date of investment. Against a backdrop of rising rates, investors continued to shun “growth” companies during the first quarter. Try to spend some time taking a look at the fund’s top 5 holdings to be informed about their best picks for 2022.
In its Q1 2022 investor letter, Greenhaven Road Capital mentioned Elastic N.V. (NYSE:ESTC) and explained its insights for the company. Founded in 2012, Elastic N.V. (NYSE:ESTC) is a Mountain View, California-based information technology and data analysis services provider with a $7.7 billion market capitalization. Elastic N.V. (NYSE:ESTC) delivered a -32.38% return since the beginning of the year, while its 12-month returns are down by -34.04%. The stock closed at $83.23 per share on April 25, 2022.
Here is what Greenhaven Road Capital has to say about Elastic N.V. (NYSE:ESTC) in its Q1 2022 investor letter:
“Elastic Software (NYSE:ESTC) – Elastic’s share price, too, was down more than 20% in the first quarter. CEO Shay Bannon stepped down during the period, which certainly spooked investors. However, he did not leave the company but instead became the Chief Product Officer. He did not sell any of his more than $500M worth of stock; he just changed his role. He is not the first CEO who has dreamed of simplifying their role to focus on the part of the business they enjoy and leave the rest to others, he is just one of the few to actually do it. I do think that in the long term the role change will prove to be the best use of his unique talents. Understandably, some investors were concerned that the CEO was being pushed down because of operational issues, but if there were issues, they have not appeared in the results. One service that tracks earnings and metrics had Elastic beating analyst estimates on 18 of their 20 metrics, including all of the important ones. Elastic grew revenue at 42% in the last quarter and their cloud-hosted version, the most important piece of business, grew at 79%. Elastic has no known material exposure to Russia or Ukraine, no known material exposure to oil, and is very well-equipped to navigate an inflationary environment.
The beliefs underlying our investment in Elastic remain intact. People want to find information quickly, Elastic will be able to maintain leading products, and Elastic will build a viable business as an open-source software company. All indications are that data is still being generated. Statista estimated that 74 zettabytes of data were going to be created in 2021, up from 59 zettabytes in 2020 and 41 zettabytes in 2019. I don’t know exactly what a zettabyte is either, but suffice it to say, data volume is increasing and parsing it effectively is as important as ever. As for the leadership and relevance of Elastic’s products, the growth rates of new products and their ability to cross sell provide evidence of success. Lastly, I think the question of the open-source business model’s viability has been put to bed. I believe Elastic will generate over $1B in revenue this year and has also changed the licensing model to encourage paid versions, successfully fought Amazon and their trademark infringement, and could be profitable tomorrow were they to dial back their very substantial investments in sales, marketing, and new product development. Everything I think we have to believe to own Elastic remains in place.”
Our calculations show that Elastic N.V. (NYSE:ESTC) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Elastic N.V. (NYSE:ESTC) was in 60 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 59 funds in the previous quarter. Elastic N.V. (NYSE:ESTC) delivered a 0.86% return in the past 3 months.
In April 2022, we also shared another hedge fund’s views on Elastic N.V. (NYSE:ESTC) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.
Disclosure: None. This article is originally published at Insider Monkey.
