Elastic shares fall after software company's post-IPO lock-up period expires

  • Elastic stock has more than doubled since the company's IPO in October.
  • A quarter of the shares subject to lock-up agreements became eligible for selling on Wednesday.
Elastic board members left to right: Peter Fenton, Steven Schuurman, Shay Banon, Chetan Puttagunta, Mike Volpi
Index Ventures
Elastic board members left to right: Peter Fenton, Steven Schuurman, Shay Banon, Chetan Puttagunta, Mike Volpi

Elastic shares dropped 3.5 percent Wednesday after the software company's initial post-IPO lock-up period expired, allowing insiders to sell stock for the first time.

Elastic, which provides open-source search software used by businesses, went public in October at $36 a share and the stock has since surged, closing on Tuesday at $87.14. Last week the company said that 25 percent of the shares that have been subject to lock-up agreements will be released and available for sale, so long as the stock's closing price on Monday was at least 33 percent higher than the IPO price.

In its IPO prospectus, Elastic said the lock-up period would cover the traditional 180 days after the offering, which would be early April. But conditions were met to accelerate the process.

On Wednesday, trading volume topped 2.3 million shares, making it the most active day for Elastic since its debut on Oct. 5. For the third consecutive day the stock moved more than 3 percent lower.

Lock-up expirations have hit other technology companies in recent years, including Nutanix, Pivotal and Roku, introducing sudden dips and spikes in trading volume. Elastic has been lightly traded to date, because only 29 percent of the shares outstanding were available to be traded, with the rest owned by insiders, primarily early employees and venture investors. Large shareholders include Australia's Future Fund Management Agency, Morgan Stanley, venture-capital firm Benchmark and co-founders Shay Banon and Steven Schuurman.

Often, fewer than 500,000 shares have been traded per day, less than other companies that have gone public recently, like Anaplan, SurveyMonkey and Upwork.

On Tuesday, analysts at Oppenheimer and Co. initiated coverage of Elastic with an outperform rating and a $110 price target.

"We see a long runway for growth and believe current expectations under-appreciate Elastic's applicability, revenue upside potential" and ability to grow beyond search, the analysts wrote.

WATCH: Elastic CEO on NYSE IPO