EPS of $-0.16 decreased by 109.1% from previous year
Gross margin of 74.6%
Net income of -17.06M
"Total revenue grew 17% year-over-year with cloud revenue growing 26% year-over-year and our non-GAAP operating margin represented 17% of revenue." - Ashutosh Kulkarni
Elastic NV (ESTC) QQ3 2025 Results: Generative AI Tailwinds Drive Revenue Growth, Cloud Momentum and Margin Resilience
Executive Summary
Elastic delivered a solid QQ3 2025 performance, underscoring durable demand for its Elastic Stack-powered platform across search, observability, and security. Total revenue of $382.1 million rose 17% year over year, led by cloud revenue growth of 26% YoY, and the company achieved a non-GAAP operating margin of 17% of revenue. Cloud now accounted for 47% of total revenue, and Elastic Cloud represented over half of all subscription revenue for the first time, signaling a decisive shift to a cloud-first consumption model. Customer momentum remained robust, with over 1,460 customers spending more than $100,000 in annual contract value (ACV), and more than 1,750 Elastic Cloud customers using Gen AI use cases, including more than 270 customers spending $100,000+ annually on Gen AI workloads.
Management attributed the outperformance to continued GTM execution, a multi-solution platform strategy, and Gen AI tailwinds that are driving broader consolidation onto the Elastic platform (search, observability, and security). Notable product and go-to-market milestones included serverless GA on AWS (Azure in tech preview with planned GA), logsdb Index Mode (enterprise tier) and the new Rerank model to improve retrieval quality and cost efficiency. The company also highlighted five deals above $1 million in annual contract value tied to Gen AI deployments, and a continued emphasis on land-and-expand within enterprise and high-potential mid-market segments.
Guidance was raised for full-year 2025: revenue of $1.474–$1.476 billion (~16% YoY at the midpoint, ~17% in constant currency) and non-GAAP operating margin of about 14.7% with non-GAAP diluted EPS in the $1.91–$1.96 range. For Q4, Elastic expects $379–$381 million in revenue (about 13% YoY at the midpoint), ~13.5% non-GAAP operating margin, and EPS of $0.36–$0.37. The firm signaled that Gen AI investments will continue to be front-ended into FY2026, with margins expanding only modestly and a focus on revenue growth at scale. On the balance sheet, cash and equivalents stood around $587.6 million with total debt approximately $587.7 million and net debt near $3.7 million; the company generated roughly $88.1 million of cash from operations and about $87.3 million of adjusted free cash flow in the quarter. The management transition to Navam Welihinda as CFO from February 28, 2025 was announced, with Eric Prengel transitioning to a broader FP&A role.
Overall, Elastic is positioned to leverage Gen AI-driven demand across its three solution areas and to continue expanding margins through operational leverage as it scales, while balancing investments in Gen AI capabilities, platform breadth, and go-to-market execution.
Key Performance Indicators
Revenue
382.08M
QoQ: 4.58% | YoY:16.50%
Gross Profit
284.93M
74.57% margin
QoQ: 4.68% | YoY:17.10%
Operating Income
-4.64M
QoQ: -4.79% | YoY:81.97%
Net Income
-17.06M
QoQ: 32.98% | YoY:-109.68%
EPS
-0.16
QoQ: -133.33% | YoY:-109.09%
Revenue Trend
Margin Analysis
Key Insights
Total revenue: $382.083 million, up 17% YoY (as-reported) and 17% in constant currency.
Subscription revenue: $358.0 million, up 16% YoY; Elastic Cloud revenue: $180.0 million, up 26% YoY; Elastic Cloud accounted for 47% of total revenue and exceeded 50% of total subscription revenue for the first time.
Self-service Elastic Cloud (month-to-month) was 13% of total revenue and remained flat in dollar terms.
Professional services: $24.0 million, up 18% YoY.
Gross margin: 76.7% (GAAP) consistent with prior quarters; gross profit of $284.931 million.
Financial Highlights
Revenue and profitability metrics:
- Total revenue: $382.083 million, up 17% YoY (as-reported) and 17% in constant currency.
- Subscription revenue: $358.0 million, up 16% YoY; Elastic Cloud revenue: $180.0 million, up 26% YoY; Elastic Cloud accounted for 47% of total revenue and exceeded 50% of total subscription revenue for the first time.
- Self-service Elastic Cloud (month-to-month) was 13% of total revenue and remained flat in dollar terms.
- Professional services: $24.0 million, up 18% YoY.
- Gross margin: 76.7% (GAAP) consistent with prior quarters; gross profit of $284.931 million.
- Operating margin: 16.8% (non-GAAP) vs. expectations; GAAP operating income was negative at $-4.638 million.
- Net income: $-17.056 million; net income margin: -4.46%; fully diluted EPS: $-0.16.
- Adjusted free cash flow: $99.0 million; adjusted FCF margin: 26.0%.
- Net expansion rate: ~112% ( YoY consistent with prior quarter).
- Customers: 1,460+ customers with ACV > $100k; 4,540 customers > $10k ACV; ~21,350 total subscription customers.
- Gen AI momentum: 1,750 Elastic Cloud customers using Gen AI use cases; 270+ Gen AI customers spending >$100k annually on Gen AI workloads.
- Cash flow and liquidity: Operating cash flow $88.1 million; free cash flow around $87.3 million; cash at end of period $587.6 million; total debt $587.7 million; net debt $3.7 million. Cash balance supported by $1.284 billion in cash and short-term investments combined.
- Valuation backdrop (peer context): ESTC trades with a price-to-sales around 30.7x and a negative GAAP earnings trajectory, reflecting a high-growth, largely reinvesting software platform amid a cloud-native Gen AI cycle. Enterprise value multiples suggest premium positioning relative to some peers, consistent with a Gen AI–driven software platform with a large TAM.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
382.08M
16.50%
4.58%
Gross Profit
284.93M
17.10%
4.68%
Operating Income
-4.64M
81.97%
-4.79%
Net Income
-17.06M
-109.68%
32.98%
EPS
-0.16
-109.09%
-133.33%
Key Financial Ratios
currentRatio
2.02
grossProfitMargin
74.6%
operatingProfitMargin
-1.21%
netProfitMargin
-4.46%
returnOnAssets
-0.73%
returnOnEquity
-1.99%
debtEquityRatio
0.68
operatingCashFlowPerShare
$0.85
freeCashFlowPerShare
$0.84
priceToBookRatio
13.64
priceEarningsRatio
-171.76
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management themes from QQ3 2025 earnings call:
- Strategy and GTM execution: Ashutsosh Kulkarni highlighted a ramp in field segmentation focused on enterprise and high-potential mid-market customers, with a return to prior levels of sales execution and a stronger deal flow. He noted, “The changes resulted in some unanticipated sales execution issues in Q1 that we have since been addressing.” The team emphasized “land and expand” as a core growth engine, with more customers spending over $1 million this year than in all of last year.
- Gen AI and platform breadth: Kulkarni stressed that Generative AI is a tailwind across all three solution areas (Search, Observability, Security) and is enabling new workflows (agentic AI, retrieval-augmented generation). Eric Prengel reiterated that Gen AI strengthens utilization across Elastic’s platform and can drive higher-quality revenue through expanded workloads.
- Product innovations and differentiators: The quarter featured the GA of Elastic Cloud Serverless (AWS generally available, Azure preview, GA expected March), LogsDB Index Mode in enterprise tier, and the Rerank model in tech preview. These features are positioned to improve data efficiency, reduce costs, and elevate the value of the Elastic AI platform for Gen AI workloads.
- Notable customer wins and consolidation: The company highlighted a seven-figure deal in smart water management and a seven-figure agreement with Madrid Digital for Elastic Observability; ongoing discussions emphasize cross-solution expansion and consolidation onto Elastic.
- Financial performance and guidance: Eric Prengel noted that Elastic outperformed the high end of revenue and profitability guidance, with a Q3 revenue of $382 million and non-GAAP operating margin of 16.8%. The company raised full-year guidance and provided Q4 numbers, citing FX headwinds and fewer days in Q4 as modest headwinds to revenue growth. Navam Welihinda’s upcoming CFO appointment was announced, signaling leadership depth to support the growth trajectory.
Total revenue grew 17% year-over-year with cloud revenue growing 26% year-over-year and our non-GAAP operating margin represented 17% of revenue.
— Ashutosh Kulkarni
Generative AI is enabling organizations to extract value from unstructured data, documents and logs.
— Ashutosh Kulkarni
Forward Guidance
Outlook and assessment:
- Q4 2025 guidance: Revenue $379–$381 million, representing ~13% YoY growth at the midpoint; non-GAAP operating margin ~13.5%; non-GAAP EPS $0.36–$0.37; diluted weighted-average shares ~107.5–108.5 million. These figures incorporate a roughly $10 million sequential headwind from three fewer days in Q4, plus approximately $1–$2 million FX impact and flat Elastic Cloud month-to-month revenue.
- Full-year FY25 guidance: Revenue $1.474–$1.476 billion, ~16–17% YoY growth at the midpoint; non-GAAP operating margin ~14.7%; non-GAAP EPS $1.91–$1.96. Elastic retains a strong growth-and-margin profile enabled by a high net expansion rate, a sizable cloud contribution, and disciplined operating expense management.
- FY26 considerations: Management signaled a continued Gen AI–driven growth trajectory but with a measured, profitability-focused approach. Non-GAAP operating margin is expected to expand only modestly in FY26 relative to FY25, with front-loaded investments in GTM, product development, and engineering. The plan includes expanding the Serverless and AI tooling capabilities, broader hyperscaler expansion (GA on all three major clouds), and a continued emphasis on gambits to capture larger share of the Gen AI TAM.
- Key factors investors should monitor: (1) execution of the serverless transition and its impact on gross margins and cloud economics; (2) pace of AD/GTM hires and field capacity as revenue growth remains above 15% in the near term; (3) mix-shifts between self-hosted and Elastic Cloud revenue as customers migrate workloads to cloud-native deployments; (4) retention and expansion dynamics from Gen AI customers; (5) FX and macro headwinds affecting enterprise IT budgets; (6) governing regulatory and public sector opportunities that could alter the mix of deals.
- Bottom line: Elastic’s QQ3 results reinforce a favorable demand environment for Gen AI–driven data platforms and cloud-native deployment models, underpinned by a resilient gross margin, strong FCF, and an expanding customer base. The investments planned for FY26 aim to sustain long-term growth and margin expansion, albeit with near-term pressure from higher operating expenses and FX, which investors should weigh against the company’s multi-year TAM expansion.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
ESTC Focus
74.57%
-1.21%
-1.99%
-171.76%
PD
83.00%
-8.65%
-5.31%
-70.52%
GTLB
88.70%
-14.70%
4.08%
73.32%
DT
81.10%
10.90%
14.20%
11.22%
MDB
74.40%
-5.27%
-0.65%
-511.85%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Bullish on Elastic's ability to monetize Gen AI through a scalable, multi-solution platform. The firm’s high net expansion, cloud monetization, and ongoing product innovations (serverless, logsdb Index Mode, Rerank, Attack Discovery) position Elastic to capture a rising share of the Gen AI TAM. The company’s disciplined cost structure and positive FCF profile, coupled with a robust balance sheet, provide a foundation for sustained investments in GTM, product development, and hyperscaler integrations. The near-term guidance reflects prudent assumptions (FX, fewer days in Q4) while signaling confidence in long-term growth even as FY26 investments front-load. Investors should monitor the cadence of serverless adoption, the velocity of enterprise accretions, and the evolution of gross margins as the company leans into higher-value Gen AI workloads.
Key Investment Factors
Growth Potential
Robust Gen AI demand across Search, Observability, and Security; serverless Cloud expansion and rising Elastic Cloud mix provide a path to higher gross margins and longer-term ARR growth. Leadership in vector databases, embedding models, and Rerank enhances Elastic’s ability to capture multi-step AI workloads and agentic workflows, broadening the total addressable market for Elastic as a runtime platform for Gen AI.
Profitability Risk
Near-term profitability pressure due to front-loaded Gen AI investments and FX headwinds; execution risk during GTM model transition (past Q1 issues); reliance on enterprise/ government spending cycles; competitive risk from hyperscalers embedding AI capabilities or incumbents accelerating AI enhancements; potential slower-than-expected migration of workloads to serverless or to Elastic Cloud.
Financial Position
Healthy liquidity with cash and cash equivalents around $587.6 million and total debt ~$587.7 million; net debt near $3.7 million. Strong cash flow generation (adjusted FCF $99 million in Q3; FCF margin 26%) supports continued investment in growth initiatives while maintaining a solid balance sheet. The company’s balance sheet shows substantial deferred revenue (~$660.9 million) signaling durable revenue obligations and healthy future cash flow.
SWOT Analysis
Strengths
Leading Gen AI–driven platform with vector database, embedding models, and Rerank enhancements.
Strong land-and-expand growth with 1,460+ ACV> $100k and 112% net expansion.
Significant cloud mix and operating leverage: Cloud revenue +26% YoY; Elastic Cloud >50% of subscription revenue.
Product momentum: logsdb Index Mode, serverless GA, and AI-driven security (Attack Discovery).
Management execution evidenced by GTM segmentation refinements and broad-based customer wins.
Weaknesses
Near-term GAAP profitability pressures and negative net income in QQ3 2025.
FX headwinds and a shorter Q4 cycle pose sequential revenue headwinds.
Execution risks around GTM model transition remain a potential source of volatility until fully embedded.
Opportunities
Expansion of Gen AI workloads across customers, increasing attach rates to Observability and Security.
Further serverless adoption across all hyperscalers, driving gross margin improvement and cloud economics.
Expansion in government and enterprise segments with cross-solution consolidation.
Continued leadership in retrieval-augmented generation and AI-driven data platforms to capture new workloads.
Threats
Competition from other vector databases and AI-capable platforms; incumbents adding Gen AI features.
Macro headwinds and US government/public sector procurement cycles.
Sudden shifts in customer budgets or a slower-than-expected cloud transition could impact growth.
GitLab Inc (GTLB) Q3 FY2025 Results Analysis: 31% YoY Revenue Growth to $196.0M; Record Non-GAAP Margin; AI-Driven Expansion Across Ultimate, Duo and ...