What Happened?
Shares of search software company Elastic (NYSE: ESTC) fell 12.5% in the afternoon session after the company reported weak first quarter (fiscal Q4) results: its full-year revenue guidance slightly missed and its revenue guidance for next year suggested a slowdown in demand. The company projected just 12% revenue growth for fiscal 2026, compared to the 17% growth in the previous year.
On the other hand, Elastic reported strong growth in customers, and its full-year EPS guidance trumped Wall Street's estimates. Overall, this print was mixed. The market seemed to be hoping for more.
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What The Market Is Telling Us
Elastic’s shares are quite volatile and have had 19 moves greater than 5% over the last year. But moves this big are rare even for Elastic and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 6 months ago when the stock gained 30.8% on the news that the company reported a "beat and raise" quarter. Elastic blew past analysts' billings and revenue estimates, primarily driven by strong growth in the cloud business, which rose 25% year on year.
Despite some of the challenges recorded in recent quarters, the improved top-line performance suggested that the focus on key enterprise and high-potential mid-market customers was bearing fruit.
On the product front, the company observed signs of accelerating demand for its Generative AI offerings. New customer commitments with GenAI almost doubled in dollar volume compared to the previous quarter, and three of the deals signed were greater than $1 million in annual contract value. Earnings also exceeded expectations as the sales strength combined with disciplined spending and improved efficiency.
As a result, the company was able to provide encouraging guidance as it raised its revenue, profits, and earnings forecast for the full year.
Overall, we think this was a solid "beat-and-raise" quarter. Following the results, Baird upgraded the stock from Neutral to Outperform (Buy), citing "a significant unexpected turnaround in execution, evident in Q2′s results, highlighted by strong commitments, healthy consumption, improved win-rates and GenAI-inflection validating our medium-term/long-term thesis.".
Elastic is down 19.2% since the beginning of the year, and at $80.07 per share, it is trading 34.5% below its 52-week high of $122.27 from July 2024. Investors who bought $1,000 worth of Elastic’s shares 5 years ago would now be looking at an investment worth $893.04.
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