Elastic Posts 20% Revenue Jump in Q1

Key Points

• Elastic (NYSE:ESTC) beat its own revenue and earnings forecasts for the quarter, with revenue up 17.0% and non-GAAP EPS up 71.4% in FY2025 compared to FY2024.

• Non-GAAP operating and profit margins improved considerably in FY2025.

• Management issued a conservative outlook for the coming quarter and year, projecting a noticeable slowdown in revenue growth.

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Elastic (NYSE:ESTC), a software company known for its Search AI Platform that powers search, observability, and security solutions, reported earnings for the quarter ended July 31, 2025, on August 28, 2025. The company’s results did not surpass Wall Street expectations for Q1 FY2026, with reported GAAP revenue of $415.3 million and non-GAAP earnings per share (EPS) of $0.60, compared to analyst estimates centering around $425.73 million in GAAP revenue and $0.64 non-GAAP diluted EPS. Performance was bolstered by robust growth in its cloud-based offerings and strong uptake from enterprise clients. Despite the beat, management set a more cautious tone for the next period, forecasting revenue growth to slow to the mid-teens in FY2026 and projecting nearly flat sequential revenue. Overall, the quarter showed notable progress in margins and cash generation, but forward guidance signals management is bracing for a more measured pace ahead.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q4 2025 earnings report.

The Elastic Business and Recent Strategic Focus

Elastic delivers software to help organizations search, observe, and secure their data. Its main Search AI Platform offers tools for real-time data exploration, security event detection, and application performance monitoring. The company’s core products include Elasticsearch (search software) and Kibana (data visualization), available on a cloud subscription or for customers to run on their own systems.

In recent years, Elastic has put emphasis on its cloud-based services and integrating artificial intelligence features into its platform. The key focus has been growing the Elastic Cloud business, expanding AI-driven capabilities like machine learning and vector search, and deepening partnerships with major cloud providers. Success for Elastic hinges on driving adoption among large enterprises, innovating with AI, and maintaining healthy expansion among existing customers.

Notable Events and Performance in the Quarter

Elastic’s GAAP revenue rose 20% year over year, with revenue exceeding its own forecasts and signaling continued demand for its data search and AI technologies. The cloud segment remained a highlight, with Elastic Cloud revenue growing by 24% year-over-year, accounting for 47% of total GAAP revenue.

Operating income on a non-GAAP basis jumped 75% compared to Q1 FY2025, and the non-GAAP operating margin widened from 10.7% to 15.7%. Adjusted free cash flow, which essentially measures the cash left over after running the business and making capital investments, increased by 81.6% compared to Q1 FY2025 to $116.0 million, and growing sales to large business customers.

Several key product milestones marked the period. The company launched the Elastic AI SOC Engine, an artificial intelligence-powered security tool that helps automate threat detection and investigation for enterprise customers. In its observability product family, Elastic introduced Logs Essentials, a new cloud-based tier for simplifying system monitoring. The company deployed advanced vector search algorithms—BBQ and ACORN-1—which improve search results for AI and large language model workloads. These continued investments support Elastic’s positioning as a leading provider in both the observability and security software markets.

Elastic’s go-to-market focus on enterprise accounts paid off, with the number of customers spending more than $100,000 per year rising to over 1,550. The company maintained a net expansion rate of approximately 112%, showing existing customers were continuing to grow their use of the platform. New partnerships also supported the period, including collaborations with large public-sector clients such as the U.S. General Services Administration and deeper technical ties with technology leaders like Dell and Nvidia. Industry recognition—such as being named a leader in key analyst reports covering observability and security analytics—added credibility to its approach.

Looking Ahead: Guidance and What to Watch

Despite the strong results, Elastic’s management set a more restrained outlook for the upcoming quarter and FY2026. The company forecasts revenue in the range of $415 million to $417 million for Q2 FY2026, representing only 14% growth versus the same period last year and signaling almost no increase from the current quarter. Full-year revenue guidance was set at a midpoint of $1.684 billion for FY2026, up about 14% from last year, but indicates a slowing trend compared to the growth just posted.

Management did not announce any plans to start or increase a dividend. Key areas to monitor include sustained cloud revenue growth and traction among smaller business customers.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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Motley Fool Markets Team is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. The Motley Fool takes ultimate responsibility for the content of these articles. Motley Fool Markets Team cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool recommends Elastic. The Motley Fool has a disclosure policy.