Elastic (ESTC, Financial), a provider of search and observability platforms, reported strong Q4 2025 results, surpassing EPS expectations and continuing its trend of beating earnings forecasts. Revenue increased by 16% year-over-year, driven by the adoption of AI-driven solutions, particularly in the Elastic Cloud segment, which grew 23% to $182 million. Improved sales execution targeting high-value enterprise accounts also contributed to this growth. However, the cautious FY26 revenue guidance of $1.655-$1.670 billion fell short of consensus estimates, raising concerns about future growth potential.
- Following an impressive Q3 performance, ESTC had set high expectations with strong enterprise demand for its Elasticsearch platform and improved sales execution. This led to a customer net expansion rate of 112% and 1,460 customers with annual contract values exceeding $100,000, indicating strong customer loyalty and upselling opportunities.
- Despite advancements in generative AI capabilities, the underwhelming FY26 guidance dampened investor sentiment.
For Q1 2026, ESTC provided in-line EPS guidance of $0.41 to $0.43 and revenue guidance of $396-$398 million, slightly above expectations. However, the FY26 revenue growth forecast of 12-13% missed projections. The cautious outlook is due to macroeconomic uncertainties impacting enterprise spending, a $10 million sequential headwind from fewer days in Q4, and a $1-2 million foreign exchange impact.
- Investments in AI innovation and sales initiatives, particularly front-loaded in Q1 2026, may pressure near-term margins, adding to the conservative outlook.
Elastic Cloud revenue, a critical metric for investors, grew 23% year-over-year in Q4, down from 26% in Q3, raising concerns about potential deceleration in cloud adoption. Despite robust growth, this contrasts with previous quarters' stronger rates, reflecting challenges in scaling amid competitive pressures from other platforms. Investors are closely monitoring Elastic Cloud’s trajectory as it is a key growth driver, accounting for a significant portion of the company’s subscription revenue.
ESTC's customer metrics remain positive, with the total customer count with ACV greater than $100,000 rising to over 1,510 in Q4, up from 1,460 in Q3 and 1,330 in Q4 2024, marking a 14% year-over-year increase. This growth is driven by ESTC’s strategic focus on enterprise and mid-market accounts, supported by field segmentation changes initiated at the start of FY25.
ESTC’s Q4 results demonstrated strong execution with EPS and revenue beats driven by robust cloud growth and enterprise adoption. However, the stock experienced a sharp sell-off due to investor disappointment with the cautious FY26 revenue guidance. Despite near-term macroeconomic headwinds, ESTC’s observability platform remains well-positioned for sustained demand, particularly as enterprises leverage its AI-driven capabilities for generative AI use cases, potentially driving long-term growth.
