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    Elastic (ESTC)

    Q3 2025 Earnings Summary

    Reported on Feb 28, 2025 (After Market Close)
    Pre-Earnings Price$101.28Last close (Feb 27, 2025)
    Post-Earnings Price$113.00Open (Feb 28, 2025)
    Price Change
    $11.72(+11.57%)
    • Strong sales execution has returned, with commitments and deal flow back to previous levels, particularly in the enterprise and mid-market segments. The company added more million-dollar customers in the first three quarters than in all of last year, demonstrating the effectiveness of their focus on high-value customers.
    • Generative AI is a significant growth driver, acting as a strong tailwind across all three solution areas (search, observability, and security). Elastic closed five deals over $1 million in annual contract value where customers are building Gen AI applications using their platform.
    • Broad-based strength across the business, with customers consolidating onto the Elastic platform in observability and security, leading to multiple 7-figure deals, including with a U.S. military unit choosing Elastic Security for its compelling total cost of ownership.
    • Management does not expect the strong cloud growth observed in Q3 to continue into Q4, indicating potential deceleration in cloud revenue. Eric Prengel stated, "we don't anticipate that we want to bake into our guide that we're going to see that same sequential strength that we saw between Q2 and Q3."
    • Total customer count growth is slowing as the company focuses on larger enterprise customers, potentially indicating challenges in acquiring new customers, especially smaller ones. Ashutosh Kulkarni mentioned, "our focus has been on our enterprise and mid-market high-propensity customers... the metrics that we really care about are the number of customers spending over $100,000 with us."
    • Sales execution issues experienced in Q1 will continue to impact revenue growth in Q4, suggesting lingering operational challenges. Eric Prengel noted, "the shortfall in customer commitments that we experienced in the first quarter of this year will remain a headwind to year-over-year revenue growth in the fourth quarter."
    MetricYoY ChangeReason

    Total Revenue

    +16.5% (from $327,957K to $382,083K)

    Revenue increased strongly due to robust demand and improved sales performance over Q3 2024, reflecting a healthy market response and possibly effective pricing or product mix strategies.

    Cost of Goods Sold (COGS)

    +14.8% (from $84,642K to $97,152K)

    COGS grew noticeably likely due to higher sales volumes and increased production costs associated with revenue expansion, which may exert pressure on gross margins relative to revenue gains.

    Operating Income

    Loss narrowed from -$26,404K to -$4,638K (82% improvement)

    Operating efficiency improved dramatically, driven by better expense management and operational leverages that helped narrow losses, though the business remains unprofitable at the operating level compared to the previous period.

    Net Income and EPS

    Net Income: from +$176,124K to -$39,961K; EPS: from $1.74 to -$0.16

    Net income reversal and EPS deterioration indicate that despite higher revenue and improved operating income, significant non-operational factors such as elevated one-time charges, increased non-operating expenses, or higher tax liabilities dramatically impacted the bottom line.

    Cash Flow

    Net change in cash of -$74,221K

    The liquidity position weakened with a significant cash outflow, suggesting that increased investments, working capital requirements, or capex and other cash commitments have strained cash reserves compared to previous periods.

    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    Total Revenue (Quarterly)

    Q3 2025

    $367 million to $369 million

    no current guidance

    no current guidance

    Non-GAAP Operating Margin (Quarterly)

    Q3 2025

    Approximately 15%

    no current guidance

    no current guidance

    Non-GAAP Diluted EPS (Quarterly)

    Q3 2025

    $0.46 to $0.48

    no current guidance

    no current guidance

    Total Revenue (Quarterly)

    Q4 2025

    no prior guidance

    $379 million to $381 million

    no prior guidance

    Non-GAAP Operating Margin (Quarterly)

    Q4 2025

    no prior guidance

    Approximately 13.5%

    no prior guidance

    Non-GAAP Diluted EPS (Quarterly)

    Q4 2025

    no prior guidance

    $0.36 to $0.37

    no prior guidance

    Total Revenue (Annual)

    FY 2025

    $1.451 billion to $1.457 billion

    $1.474 billion to $1.476 billion

    raised

    Non-GAAP Operating Margin (Annual)

    FY 2025

    Approximately 13.5%

    Approximately 14.7%

    raised

    Non-GAAP Diluted EPS (Annual)

    FY 2025

    $1.68 to $1.72

    $1.91 to $1.96

    raised

    Adjusted Free Cash Flow Margin (Annual)

    FY 2025

    Expected to be slightly above the non-GAAP operating margin

    Expected to be a few points above the non-GAAP operating margin

    raised

    MetricPeriodGuidanceActualPerformance
    Total Revenue
    Q3 2025
    $367M to $369M
    $382.1M (382,083 thousands)
    Beat
    1. Gen AI Driving Growth
      Q: Is Gen AI now the main driver of new customer growth?
      A: Yes, Gen AI is one of our most leading discussions with customers. It's creating more opportunities across our entire business, including search, observability, and security. Customers are choosing us as a runtime platform for building AI applications, which helps us consolidate more workloads onto our platform. (** , **)

    2. Search Segment Acceleration
      Q: How is the growth in the search segment compared to other areas?
      A: Search has grown significantly and is now the fastest-growing part of our business, driven by Gen AI. In recent quarters, we've seen search outpace observability and security, expanding our total addressable market. (** , **)

    3. Cloud Consumption Strength
      Q: What drove the stronger growth in cloud this quarter?
      A: The outperformance was due to strong customer commitments and healthy consumption levels in the cloud from both enterprise and commercial accounts. Larger customers contributed to this strength. (** , **)

    4. Serverless Product Impact
      Q: What's the long-term vision for the serverless product and its financial impact?
      A: Our vision is for serverless to become the primary way customers experience Elastic Cloud. It offers a better user experience with almost no management effort, aligns resource costs more linearly, and should eventually uplift our gross margin. However, financial impacts will take time as it's still early days. ()

    5. Go-to-Market Focus and Pipeline
      Q: How has the go-to-market transition impacted sales execution and pipeline?
      A: We've doubled down on managing pipeline creation and progression, focusing on enterprise and mid-market high-propensity customers. This has resulted in adding more million-dollar customers in the first three quarters than in all of last fiscal year. (** , **)

    6. Upgrading Customers to Higher Tiers
      Q: What's driving customers to upgrade to higher subscription tiers?
      A: Advanced features like Logsdb index mode, AI functionalities, and attack discovery are encouraging customers to move to higher tiers. This motion has worked well, and we're giving customers more reasons to upgrade. ()

    7. Q4 Guidance and Headwinds
      Q: What factors are influencing the Q4 revenue guidance?
      A: We're guiding to $380 million at the midpoint. Key factors include three fewer days in Q4, a headwind of about $10 million, and $1-2 million of FX impact. We're also not assuming the same level of consumption strength from larger customers as in Q3. (** , **)

    8. Displacement of Competitors
      Q: Are you seeing increased displacement of competing vector databases?
      A: While we sometimes displace incumbents, implementations tend to be small as Gen AI is relatively young. Our focus is on winning as many deals as possible rather than specifically targeting displacements. ()

    9. Self-Service Cloud Business
      Q: How is the self-service cloud business performing?
      A: The self-service cloud business, targeting SMBs, remained consistent with recent quarters and was flat. It's more correlated with the SMB market segment. Our focus is on sales-led motion in enterprise and mid-market customers. ()

    10. Industry M&A Impact
      Q: Are you benefiting from industry M&A and consolidation?
      A: Yes, we're seeing customers wanting to consolidate onto our platform, especially as some incumbents fall behind in capabilities. However, this often doesn't impact customer count, as many are already existing customers expanding their usage. (** , **)

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