Elastic N.V. (NYSE: ESTC), a company specializing in artificial intelligence-powered data search software, is gaining attention from market analysts. Despite its stock trading 54% below its 2021 peak, the company recently reported accelerated revenue growth and improved profitability, leading to a positive consensus from Wall Street.
Key Takeaways
- Elastic reported a 20% year-over-year revenue increase to $415 million in its fiscal first quarter, an acceleration from 16% in the prior quarter.
- The company's stock remains 54% lower than its all-time high in 2021, but its valuation has become more moderate.
- A majority of Wall Street analysts covering the stock hold a buy rating, with an average price target suggesting a potential 42% upside.
- Elastic is improving its financial health by narrowing its GAAP net loss by 50% and increasing its non-GAAP net income by 74% year-over-year.
Addressing the Challenge of Big Data
Modern businesses face the significant task of managing and utilizing vast quantities of information. According to the International Data Corporation, approximately 480 exabytes of new data are generated globally every day. An exabyte is equivalent to one million terabytes, illustrating the scale of the data management problem.
Elastic develops software designed to help organizations make their internal data more accessible and useful. Its core product, Elasticsearch, functions as a search layer over a company's data, allowing employees to find information using simple, natural language queries instead of sifting through numerous documents manually.
Introducing Search AI for Enhanced Functionality
To further improve its offerings, Elastic has developed a new platform called Search AI. This tool integrates generative AI capabilities into the Elasticsearch system, enabling more sophisticated and faster responses to user queries. The technology can reduce search times from minutes to milliseconds, even for complex or less specific questions.
The application of Search AI extends beyond internal use. Businesses can implement it on their e-commerce websites to create a more intuitive customer experience. For example, a customer on a home improvement site could ask, "what materials do I need for a 100-foot brick retaining wall?" The system would then generate a complete list of necessary products, simplifying the purchasing process.
What is Elastic?
Elastic N.V. is a software company that provides open-source tools for data search, logging, security, and analytics. Its products are built to handle large volumes of data in real-time, making it a key player in the enterprise software and AI sectors. The company's tools help organizations search and analyze their data for a wide range of applications, from application monitoring to cybersecurity threat detection.
Accelerated Growth and Financial Performance
In its fiscal 2026 first quarter, which concluded on July 31, Elastic announced revenue of $415 million. This figure represents a 20% increase compared to the same period in the previous year. This growth rate marks an acceleration from the 16% growth reported in the preceding quarter and surpassed the company's own forecast of $397 million.
A key driver of this growth is the increasing adoption by large enterprises. Elastic reported a record 1,550 customers with annual contract values of $100,000 or more, indicating strong demand from complex organizations for its data management solutions.
Improving Profitability Through Cost Management
While growing its revenue, Elastic has also focused on managing its expenses. The company's total operating expenses rose by only 13% year-over-year, a slower rate than its revenue growth. This disciplined approach has had a positive impact on its bottom line.
The company's net loss under generally accepted accounting principles (GAAP) was $24.6 million for the quarter. This is a 50% reduction from the $49.2 million net loss recorded in the same quarter of the previous year. On a non-GAAP (adjusted) basis, which excludes certain non-cash expenses, Elastic was profitable, reporting $64.8 million in net income, a 74% increase year-over-year.
Fiscal Q1 Financial Highlights
- Revenue: $415 million (+20% YoY)
- GAAP Net Loss: $24.6 million (50% improvement)
- Non-GAAP Net Income: $64.8 million (+74% YoY)
- High-Value Customers: 1,550 (a new record)
Wall Street Maintains a Bullish Outlook
Analysts who follow Elastic stock have largely maintained a positive view of its prospects. According to data tracked by The Wall Street Journal, out of 30 analysts covering the company, 19 have issued a buy rating. An additional three hold an overweight rating, while eight recommend holding the stock. Notably, none of the analysts recommend selling.
The consensus price target among these analysts is $119.91 per share. This target suggests a potential upside of 42% from its current trading price over the next 12 to 18 months. The most optimistic target from an analyst is $150, which would represent a 77% increase.
"The majority of analysts tracked by The Wall Street Journal have given the stock a buy rating, with none recommending selling, so there could be an opportunity here for investors."
Valuation in the Current Market
The stock's current valuation provides important context for its future potential. In 2021, during a period of high valuations for technology stocks, Elastic traded at a price-to-sales (P/S) ratio of nearly 30. This level was widely considered unsustainable.
Following the decline in its stock price and continued revenue growth, Elastic's P/S ratio has adjusted to a more moderate level of 5.7. This valuation is close to the lowest it has been since the company's initial public offering in 2018, suggesting that much of the previous market excess has been corrected.
The broader market for AI software is projected to expand significantly. Research from Ark Investment Management suggests that AI could create a $13 trillion opportunity in the software industry by 2030 as businesses increasingly adopt tools to boost productivity. As a provider of such tools, Elastic is positioned to benefit from this long-term trend, which supports the bullish consensus among many market analysts.
