EPS of $-0.23 increased by 43.9% from previous year
Gross margin of 76.7%
Net income of -24.60M
"This quarter, we launched new capabilities to improve performance and cost efficiency of our vector database, BBQ and ACORN-1, a smart filtering algorithm, available by default. BBQ and vector search with ACORN-1 helped us land a 7-figure expansion deal with a global wholesale provider of machinery parts for Elasticsearch and observability." - Ashutosh Kulkarni
Elastic NV (ESTC) QQ1 2026 Earnings Analysis: AI-Driven Growth, Gen AI Adoption, and Platform Consolidation
Executive Summary
Elastic NV delivered a strong start to fiscal 2026 with Q1 revenue of $415.3 million, up 20% year over year and 18% on a constant-currency basis. Subscription revenue excluding monthly Elastic Cloud rose 22% YoY, underscoring durable demand across cloud and self-managed deployments. Management highlighted AI-led demand across the Elastic Stack, including Gen AI workloads, embeddings, and vector search, which is supporting both the core search business and platform consolidation across observability and security. The company maintained a high gross margin (non-GAAP gross margin around 79% per management) and achieved a non-GAAP operating margin of 16%, aided by continuous leverage in a consumption-friendly model and a one-time cloud infra credit that temporarily boosted gross margin. Elastic exited Q1 with a robust balance sheet, generating substantial operating cash flow ($104.8 million) and free cash flow ($104.2 million; adjusted FCF margin of 28%), while cash and equivalents plus short-term investments totaled roughly $2.0 billion, yielding a net cash position. management raised full-year revenue guidance for fiscal 2026 to $1.679-1.689 billion (about 14% growth at the midpoint) and provided Q2 guidance of $415-417 million with non-GAAP EPS of $0.56-$0.58. With a large and expanding Gen AI footprint (over 2,200 Elastic Cloud customers using Elastic for Gen AI use cases; more than 330 with ACV >$100k), a broad-based multi-solution platform (search, observability, security), and a defensible data-retrieval/Moat centered on relevance, Elastic is positioned for a long growth runway into 2026 and beyond. Key risks include macro variability, execution in migrations (security/observability platform consolidations take time), and ongoing competitive dynamics in security and SIEM-adjacent markets. Investors should monitor ARR mix, CRPO trajectory, the pace of serverless adoption, federal government wins (FedRAMP/GSA), and the evolution of AI-enabled use cases across cloud and self-managed deployments.
Key Performance Indicators
Revenue
415.29M
QoQ: 8.69% | YoY:23.97%
Gross Profit
318.54M
76.70% margin
QoQ: 11.80% | YoY:28.90%
Operating Income
-9.44M
QoQ: -103.54% | YoY:77.16%
Net Income
-24.60M
QoQ: -44.25% | YoY:40.14%
EPS
-0.23
QoQ: -43.75% | YoY:43.90%
Revenue Trend
Margin Analysis
Key Insights
Total revenue: $415.3 million in Q1 2026, up 20% YoY and 18% CC.
Sales-led subscription revenue (ex monthly Elastic Cloud): $339.0 million, up 22% YoY and 20% CC.
Operating performance: Non-GAAP operating margin 16%; GAAP operating income of -$9.44 million (GAAP margin approximately -2.27%).
EBITDA: $8.66 million; EBITDARatio: 0.0208.
Financial Highlights
Revenue and profitability
- Total revenue: $415.3 million in Q1 2026, up 20% YoY and 18% CC.
- Sales-led subscription revenue (ex monthly Elastic Cloud): $339.0 million, up 22% YoY and 20% CC.
- Gross Profit: $318.5 million; gross margin 76.70% (GAAP basis aligns with reported gross profit; management notes non-GAAP gross margin around 79%).
- Operating performance: Non-GAAP operating margin 16%; GAAP operating income of -$9.44 million (GAAP margin approximately -2.27%).
- EBITDA: $8.66 million; EBITDARatio: 0.0208.
- Net income: -$24.60 million; net income margin -5.92%; EPS (GAAP and Diluted) -$0.23.
Cash flow and liquidity
- Operating cash flow: $104.84 million; free cash flow (FCF): $104.18 million; adjusted FCF margin: 28% in Q1 2026.
- Cash and cash equivalents: $662.3 million; total cash and short-term investments: $1.494 billion; total liquidity remains substantial.
- Balance sheet health: Total assets $2.524 billion; total liabilities $1.552 billion; total stockholders’ equity $971.4 million; net debt position is negative (net cash) of approximately $68.2 million.
Customer, ARR and mix metrics
- Remaining Performance Obligations (CRPO): $956 million, up 18% YoY and 17% CC, signaling solid near-term revenue visibility.
- Customer base: ~21,550 total customers at end of July; ~1,550+ customers spending over $100k annually; ~80% of ARR from $100k+ ACV customers.
- Elastic Cloud/gen AI: >2,200 Elastic Cloud customers using Elastic for gen AI use cases; >$100k ACV customers >330; Q1 added more million-ACV Elastic Cloud customers for gen AI than prior two quarters combined.
- AI platform engagement: Notable 7-figure expansion with a global wholesale parts retailer using BBQ (Better Binary Quantization) and ACORN-1 for cost-efficient vector search; AI-first product features expanded across search, observability, and security.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
415.29M
23.97%
8.69%
Gross Profit
318.54M
28.90%
11.80%
Operating Income
-9.44M
77.16%
-103.54%
Net Income
-24.60M
40.14%
-44.25%
EPS
-0.23
43.90%
-43.75%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management themes and quotes from the QQ1 2026 earnings call:
- AI momentum and Gen AI adoption: 'Elastic had an excellent Q1 and a strong start to the fiscal year, delivering 20% revenue growth... driven by strength in both our cloud and self-managed offerings' (Ash Kulkarni). Ash reiterated the AI-tailwinds across the Elastic Stack and noted 2,200 Elastic Cloud customers using Elastic for gen AI use cases, with more million-ACV customers added in Q1 than the prior two quarters combined.
- Serverless and AI platform leadership: 'We launched new capabilities to improve performance and cost efficiency of our vector database, BBQ and ACORN-1 ... serverless is now generally available on all 3 cloud hyperscalers' (Ash Kulkarni). Navam Welihinda emphasized that serverless adoption is gaining traction and that the guidance assumes benefits from price increases but realized performance remains the primary driver of growth.
- Security as a growth engine and data-centric view: 'Security is a data problem' and '1/3 of our new and expansion wins in security involved competitive displacements' (Ash Kulkarni). Navam highlighted Elastic AI SOC Engine (EASE) as a bridge on top of incumbents to accelerate migrations, while Ash noted leadership in AI-driven security and Gartner/Forrester recognitions.
- Federal sector stabilization and GTM discipline: Ash described stabilization in U.S. public sector with GSA partnership progress and FedRAMP considerations; Navam confirmed stabilization and execution capability in public sector as part of the updated forecast.
- Outlook and confidence: 'Q1 was an outstanding quarter, ... we are raising our fiscal 2026 revenue guidance' (Ash Kulkarni/Navam Welihinda). The team emphasized durable gross margins, leverage from scale, and continued cash generation, with a focus on AI-driven growth and platform consolidation across all geographies.
This quarter, we launched new capabilities to improve performance and cost efficiency of our vector database, BBQ and ACORN-1, a smart filtering algorithm, available by default. BBQ and vector search with ACORN-1 helped us land a 7-figure expansion deal with a global wholesale provider of machinery parts for Elasticsearch and observability.
— Ashutosh Kulkarni
In Q1, 1/3 of our new and expansion wins in security involved competitive displacements.
— Navam Welihinda
Forward Guidance
Outlook assessment and catalysts
- Near-term guidance: Q2 2026 revenue expected at $415-417 million, up roughly 14% at the midpoint (CC neutral to +14%), with non-GAAP operating margin around 16% and non-GAAP diluted EPS of $0.56-$0.58.
- Full-year guidance: Revenue guidance raised to $1.679-$1.689 billion, implying ~14% growth at the midpoint and ~13% CC growth. Non-GAAP diluted EPS guidance is $2.29-$2.35. No formal adjusted free cash flow guidance; management notes continued potential to maintain/expand FCF margins over time, with Q1 adjusted FCF margin at 28%.
- Key drivers to watch: (1) Gen AI consumption growth and customer spend intensity as workloads scale (vector embeddings, MCp server, reranking models); (2) Serverless deployment expansion across all three hyperscalers and data center footprint; (3) Enterprise and federal sector pipeline progress, including FedRAMP and GSA initiatives; (4) Security and observability platform migrations (EASE on top of incumbents) and net expansion from displacements; (5) Price increase impact on floor versus incremental quarterly mix.
- Risks and mitigation: The trajectory remains dependent on macro stability and the pace of AI adoption in enterprise and government. Migration cycles for security/observability consolidations can dampen short-term revenue visibility, but Elastic projects durable long-term ARR growth given data-centric architecture and AI relevance. Investors should monitor: CRPO trajectory, net expansion dynamics, AI workload mix, serverless adoption rate, public sector wins, and enterprise churn.
- Overall assessment: Given Q1 outperformance, raised FY26 guidance, and a robust balance sheet with strong FCF generation, the investment case supports a constructive stance on ESTC in a multi-year horizon, contingent on sustained AI-driven demand and continued GTM execution.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
ESTC Focus
76.70%
N/A
N/A
N/A
PD
82.60%
-19.30%
-13.80%
-19.27%
GTLB
88.90%
-31.10%
-9.62%
-37.97%
DT
81.30%
10.50%
1.87%
86.76%
MDB
72.20%
-21.80%
-6.35%
-82.68%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Elastic is at an inflection point where AI-driven demand reinforces the core value proposition of the Elastic Stack as a data retrieval and context engine for large language models. The QQ1 2026 result demonstrates durable top-line growth, robust gross margins, and meaningful FCF generation, supported by a strong balance sheet and substantial liquidity. The shift toward Gen AI workloads, platform consolidation, and AI-driven security (EASE) suggests a multi-year runway for cross-sell across search, observability, and security, with government and enterprise customers migrating to Elastic as their data-problem platform. The raised FY2026 guidance, coupled with a solid CRPO base and accelerating Elastic Cloud/gen AI adoption, points to sustainable growth, though around-term risks include macro headwinds, potential slowness in migration cycles, and ongoing competition in security.
Investment thesis: Buy-reasonable risk given Elastic’s leverage to AI-driven demand, large and expanding total addressable markets in search, observability, and security, plus a strong balance sheet and efficient capital deployment. Key catalysts include serverless expansion, FedRAMP/GSA progress, larger-gen AI workloads, and incremental win-rate improvements in the security/displacement cycle. Key risk monitor points are macro volatility, migration timing, and competitive dynamics in SIEM/EDR cohorts. Overall, ESTC presents a compelling long-term opportunity for investors with a tolerance for near-term profitability variability as AI-driven adoption scales.
Key Investment Factors
Growth Potential
Gen AI-driven demand across Elastic Stack (search, observability, security) remains the core growth engine. >2,200 Elastic Cloud customers using Elastic for gen AI use cases with >$100k ACV >330 customers; a 7-figure expansion with a large retailer demonstrates tangible monetization of AI-enabled capabilities (BBQ/ACORN-1). Serverless deployment expanding across all three hyperscalers broadens addressable deployment options and reduces time-to-value for customers. EASE (Elastic AI SOC Engine) provides an on-ramp to Elastic Security, accelerating displacements from incumbents and expanding addressable security market. CRPO of $956m, up 18% YoY, supports durable revenue visibility. Management's emphasis on platform consolidation signals a long runway for cross-sell into search, observability, and security, supported by governance adoptions (GSA, FedRAMP High).
Profitability Risk
Macro sensitivity and execution risk in migratory deals (security/observability) that require engineering work and data migrations. Dependence on AI workload uptake and customer willingness to increase consumption in a consumption-based model. Competition in security origination (next-gen SIEM) and potential slower-than-expected Fed/state agency purchasing. Currency headwinds could impact constant-currency growth, though Q1 CC growth was healthy. High reliance on revenue growth from large enterprise and government clients may introduce concentration risk if large deals decelerate.
Financial Position
Solid liquidity and balance sheet with cash and short-term investments of about $1.494B and cash balance of $662.3M. Net debt stands at approximately -$68.2M (net cash). Q1 free cash flow margin 28% (adjusted). Gross margin around 79% (non-GAAP) and operating margin ~16% (non-GAAP). CRPO of $956M provides near-term revenue visibility. The company generates robust operating cash flow ($104.8M) relative to the topline, supporting ongoing investments in R&D and GTM while maintaining a healthy balance sheet for continued share repurchases or strategic investments (not currently implied in the plan).
SWOT Analysis
Strengths
Leading data retrieval and context engineering platform with strong AI relevance across search, observability, and security.
High gross margins (non-GAAP ~79%) and durable operating profitability (non-GAAP OPM ~16%) with strong cash generation (FCF 28% in Q1).
Large and expanding Gen AI footprint: >2,200 Elastic Cloud customers using Elastic for gen AI use cases; 330+ with ACV >$100k.
Broad geographic and sector exposure, including stabilized U.S. public sector demand (GSA collaboration, FedRAMP progress).