Elastic’s first quarter results were met with a negative market reaction despite the company exceeding Wall Street’s revenue and adjusted profit expectations. Management pointed to continued strong demand for its search and AI solutions, driven by enterprise customers expanding their use of Elastic’s platform for generative AI (GenAI), observability, and security. CEO Ashutosh Kulkarni acknowledged that while the business saw growth across most regions, headwinds in the U.S. public sector led to elongated sales cycles. He emphasized that “our compelling value-to-cost proposition was key to driving traction,” especially as customers seek to consolidate technology platforms and prioritize efficiency.
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Elastic (ESTC) Q1 CY2025 Highlights:
- Revenue: $388.4 million vs analyst estimates of $380.3 million (16% year-on-year growth, 2.1% beat)
- Adjusted EPS: $0.47 vs analyst estimates of $0.37 (25.9% beat)
- Adjusted Operating Income: $59.62 million vs analyst estimates of $51.15 million (15.3% margin, 16.6% beat)
- Revenue Guidance for Q2 CY2025 is $397 million at the midpoint, roughly in line with what analysts were expecting
- Adjusted EPS guidance for the upcoming financial year 2026 is $2.28 at the midpoint, beating analyst estimates by 9.4%
- Operating Margin: -3.1%, up from -13.6% in the same quarter last year
- Customers: 21,500, up from 21,350 in the previous quarter
- Net Revenue Retention Rate: 112%, in line with the previous quarter
- Billings: $518.4 million at quarter end, up 16.1% year on year
- Market Capitalization: $8.73 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions Elastic’s Q1 Earnings Call
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Pinjalim Bora (JPMorgan) asked if Elastic’s guidance was more conservative than in prior periods. CFO Navam Molyanda replied that the guidance reflects caution given macro uncertainty, particularly in extrapolating U.S. public sector headwinds to the broader business.
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Sanjit Singh (Morgan Stanley) inquired about the durability of RAG (retrieval-augmented generation) architectures. CEO Ashutosh Kulkarni stated that RAG is essential for enterprises with large, dynamic data sets, and Elastic’s vector database is positioned to support this trend.
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Tyler Radke (Citi) sought clarification on AI adoption among large customers. Kulkarni explained that 25% of customers with million-dollar commitments are using Elastic for AI, with expanding use cases beyond semantic search into workflow automation and agentic AI.
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Howard Ma (Guggenheim Securities) questioned the connection between AI momentum and cloud growth, given sequential fluctuations. Kulkarni emphasized that AI adoption benefits both cloud and self-managed deployments, and growth should be evaluated across both segments.
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Kash Rangan (Goldman Sachs) asked about lessons from last year’s sales segmentation changes and future go-to-market refinements. Kulkarni said the changes have driven larger deals and better platform consolidation, with further focus on enterprise and security sales specialization.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will monitor (1) the pace of generative AI adoption and resulting expansion in large enterprise accounts; (2) the impact of new partnerships with AWS, Google Cloud, and NVIDIA on driving competitive wins; and (3) stabilization or improvement in U.S. public sector demand. We will also watch for signs of enhanced sales productivity and the scaling of new AI-driven product features.
Elastic currently trades at $83.09, down from $91.98 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).
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