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Elastic (ESTC), the provider of a search and observability platform, delivered solid 4Q25 results, surpassing EPS expectations, continuing its consistent trend of beating earnings forecasts. Revenue grew by a healthy 16% yr/yr, also exceeding analysts' estimates, driven by strong adoption of ESTC's AI-driven solutions, particularly within the Elastic Cloud segment, which grew 23% yr/yr to $182 mln. Additionally, improved sales execution targeting high-value enterprise accounts provided another boost. However, these strong results are being overshadowed by ESTC's cautious FY26 revenue guidance of $1.655-$1.670 bln, which fell short of the consensus estimate, raising concerns about future growth potential.

• Coming off an impressive Q3 beat-and-raise report, ESTC had set a high bar for investor expectations. The Q3 performance was fueled by robust enterprise demand for consolidating observability tools on ESTC’s Elasticsearch platform, bolstered by enhanced sales execution following a strategic shift to focus on larger accounts. This shift addressed earlier Q1 sales execution challenges, resulting in a customer net expansion rate of 112% and a total of 1,460 customers with annual contract values (ACV) exceeding $100,000, signaling strong customer loyalty and upselling opportunities.
  • The Q3 success, coupled with ESTC’s advancements in generative AI capabilities, such as the Elastic Rerank Model and Cloud Detection and Response integrations, significantly boosted investor sentiment, amplifying the disappointment when FY26 guidance underwhelmed expectations.
• For 1Q26, ESTC provided in-line EPS guidance of $0.41 to $0.43 and revenue guidance of $396 -$398 mln, slightly above expectations, while its FY26 revenue growth forecast of 12-13% missed the mark. The cautious guidance stems from several factors, including macroeconomic uncertainties impacting enterprise spending, a $10 mln sequential headwind from three fewer days in Q4 compared to earlier quarters, and a $1-2 mln foreign exchange impact.
  • Additionally, ESTC’s investments in AI innovation and sales initiatives, particularly front-loaded in 1Q26 for events like sales kickoffs, may pressure near-term margins, contributing to the conservative outlook.
• Elastic Cloud revenue, a critical metric for investors, grew 23% yr/yr in Q4, down from 26% growth in Q3, raising some concerns about potential deceleration in cloud adoption. This growth, though still robust, contrasts with prior quarters’ stronger growth rates (e.g., 30% in 1Q25), reflecting possible challenges in scaling cloud deployments amid competitive pressures from other observability and security platforms. Investors are closely monitoring Elastic Cloud’s trajectory, as it represents a key growth driver, accounting for a significant portion of the company’s subscription revenue.
• ESTC's customer metrics remain a bright spot, 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 4Q24, reflecting a 14% yr/yr increase. This growth is driven by ESTC’s strategic focus on landing and expanding within enterprise and high-potential mid-market accounts, supported by its field segmentation changes initiated at the start of FY25.

ESTC’s Q4 results showcased strong execution, with EPS and revenue beats driven by robust cloud growth and enterprise adoption, yet the stock’s sharp sell-off reflects investor disappointment with cautious FY26 revenue guidance that fell below expectations. 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, which could drive long-term growth.