By Jonathan Vanian
October 5, 2018

Shares of enterprise software company Elastic boomed on the company’s first day trading.

The company’s shares, priced at $36 the previous day, closed on Friday at $70, a whopping 94% increase.

Elastic raised $252 million in its IPO, but the huge investor interest on Friday means that the company left a lot of money on the table by failing to price its shares higher.

In an interview, Elastic CEO Shay Banon said that he’s happy with the decision to set the $36 IPO price, which he described as “fair” given a market that he believes is “frothy.” He said that Elastic was “in the unique position where we didn’t really IPO to raise money,” but did so in order to be perceived by customers as a “mature” company that’s no longer merely a startup.

The sudden spike in the company’s share price appeared to have surprised Banon.

“I think how quickly it shot up, I think it’s people believing in the future of the company,” Banon said. “I cannot control the market.”

Elastic’s IPO marks a major event for Banon, who first began developing the company’s search technology while “trying to build a recipe app” for his wife who was a chef at a London restaurant. The challenge proved daunting.

“How the hell do you implement a search box into all these recipes?” he said.

Since then, Banon and Elastic has been embedding search systems into several popular companies’ apps and internal technology. When people swipe left or right on the dating app Tinder, Elastic’s search technology helps retrieve and match users to their potential true love.

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Elastic’s technology also powers Uber’s ride-sharing app so that drivers are matched to passengers, Banon said. Uber also uses Elastic’s technology to help it search within and calibrate its internal data centers so that the app doesn’t suddenly go offline, he added.

Like most technology companies that have either recently gone public or plan to do so in the near future, Elastic is unprofitable. The company lost $52.7 million on sales of $160 million for its fiscal 2018, according to regulatory filings, and lost another $52 million last year on $88 million in revenue.

The results show that Elastic’s sales are growing quickly while its losses remain flat, which signals an improving business.

The company has the added challenge of creating a profitable business based on open-source technology, which developers can access for free. Elastic’s search tech is based on the popular open-source Lucene search technology, but it sells to companies extra features like security and support.

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The goal is “making sure we have enough incentives to convert those free users to paying customers and then retaining them,” Banon said.

Elastic’s competitors include some of the world’s biggest technology companies like Amazon and its AWS cloud business, and Oracle’s Endeca search product, the company said in its regulatory filing.

And while Elastic is a partner of Google and its cloud computing business, Google could always invest more in its Google Custom Search Engine tool, to make it more of a competing product. For now, Elastic refers to Google’s search product, which companies can add to their websites for search capabilities, as merely an “an advertisement-based site search tool with limited user controls.”

To compete with tech giants, Banon is optimistic that Elastic’s connection with the Lucene search tool and open source community will ensure that customers will keep buying Elastic’s proprietary software and support.

“It is a great moat,” he said.

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