"Elastic delivered a strong second quarter supported by solid sales execution and customer commitments. In Q2, we meaningfully exceeded guidance across all revenue and profitability metrics. Revenue grew by 18% year over year. Cloud revenue grew by 25% year over year, and we delivered a non-GAAP operating margin of 18%." - Ashutosh Kulkarni
Elastic NV (ESTC) QQ2 2025 Results: Gen AI Momentum, Cloud Growth, and Path to Profitability
Executive Summary
Elastic NV delivered a solid second quarter of fiscal 2025, marking a return to stronger sales execution after a challenging Q1. Revenue rose 18% year over year to $365.4 million, with Cloud revenue up 25% YoY and Elastic Cloud accounting for 46% of total revenue. Non-GAAP operating margin reached approximately 18% in Q2 (reported around 17.6-18%), underscoring improving operating leverage as the company continues to scale. The company also expanded its Gen AI momentum, with over 1,550 customers on Elastic Cloud using Gen AI use cases and three deals exceeding $1 million in annual contract value. Gross margin stood at 76.9%, and the company generated adjusted free cash flow of about $38 million, keeping a healthy liquidity profile with roughly $658.5 million in cash and equivalents and a net cash position of about $69 million. Management reiterated confidence in a long-term growth trajectory driven by Gen AI, vector database capabilities, and platform consolidation across security, observability, and search. In parallel, Elastic signaled a strategic transition in leadership with CFO Janesh Moorjani exiting later in the year and Eric Pringle stepping in as Interim CFO. Guidance was raised for the full year, with Q3 revenue guidance of $367–$369 million (+12% YoY at midpoint) and full-year revenue target of $1.451–$1.457 billion, along with a mid-teens non-GAAP operating margin target and EPS of $1.68–$1.72 for fiscal 2025. The quarter’s results and commentary imply a favorable long-run trajectory, though near-term headwinds include FX strength, variability in cloud consumption, and the impact of prior quarter under-commitment on year-over-year growth. Investors should monitor Gen AI adoption velocity, continued platform consolidation by customers, geographic mix, and the evolution of RPO trends as a read-through of demand pipeline.
Key Performance Indicators
Revenue
365.36M
QoQ: 5.16% | YoY:17.63%
Gross Profit
272.18M
74.50% margin
QoQ: 6.46% | YoY:18.07%
Operating Income
-4.43M
QoQ: 86.85% | YoY:79.45%
Net Income
-25.45M
QoQ: 48.30% | YoY:-2.64%
EPS
0.48
QoQ: 200.00% | YoY:292.00%
Revenue Trend
Margin Analysis
Key Insights
Total revenue: $365.361 million, up 18% year over year (YoY) and up 17% YoY in constant currency. QoQ growth was modestly positive (approximately 5% sequential, per quarter-to-quarter cues).
Subscription revenue: $341.0 million, up 18% YoY.
Elastic Cloud: 46% of total revenue in the quarter.
Cloud revenue growth: 25% YoY.
Professional services: $25.0 million, up 7% YoY.
Financial Highlights
Revenue and gross profitability
- Total revenue: $365.361 million, up 18% year over year (YoY) and up 17% YoY in constant currency. QoQ growth was modestly positive (approximately 5% sequential, per quarter-to-quarter cues).
- Subscription revenue: $341.0 million, up 18% YoY.
- Elastic Cloud: 46% of total revenue in the quarter.
- Cloud revenue growth: 25% YoY.
- Professional services: $25.0 million, up 7% YoY.
Cost, margins, and profitability
- Gross margin: 76.9%, consistent with prior quarters.
- Operating income: -$4.43 million, margin around -1.21% (non-GAAP operating margin cited around 18% by management in commentary; GAAP margins reflected the small operating loss).
- EBITDA: $8.25 million; EBITDA margin about 2.25%.
- Net income: -$25.45 million; net income margin approximately -6.97%.
- Earnings per share (diluted): $0.48.
Cash flow and balance sheet
- Net cash provided by operating activities: $38.38 million.
- Free cash flow: $37.66 million.
- Cash and cash equivalents: $658.51 million; cash and short-term investments: $1.1976 billion aggregate liquid assets.
- Total debt: $589.31 million; net debt position: -$69.20 million (net cash).
- Balance sheet strength: Total assets $2.2315 billion; total stockholders’ equity $811.52 million.
Customer metrics and mix
- Customers with annual contract value (ACV) >$100K: >1,420.
- Total subscription customers: ~21,300; customers >$10K ACV: >4,480.
- Net expansion rate: ~112% (in line with expectations).
Operating and strategic metrics
- Elastic Cloud contributed 46% of revenue; self-managed and annual Cloud revenue expected to grow slightly in dollar terms in Q3.
- Gen AI traction: 1,550 Elastic Cloud customers using Gen AI use cases; >$100K cohort >240.
- Key deals: multiple seven-figure expansions and two seven-figure displacement deals in SIEM and cybersecurity.
- RPO commentary: Q2 RPO roughly flat YoY due to Q1 shortfall; sequentially up modestly; management cautions that consumption patterns can fluctuate and thus guided conservatively for H2.
Guidance snapshot
- Q3 2025: Revenue of $367–$369 million (about 12% YoY at midpoint, 13% in constant currency); non-GAAP operating margin ~15%; non-GAAP diluted EPS $0.46–$0.48.
- Full-year 2025: Revenue of $1.451–$1.457 billion (about 15% YoY at midpoint); non-GAAP operating margin ~13.5%; non-GAAP diluted EPS $1.68–$1.72.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
365.36M
17.63%
5.16%
Gross Profit
272.18M
18.07%
6.46%
Operating Income
-4.43M
79.45%
86.85%
Net Income
-25.45M
-2.64%
48.30%
EPS
0.48
292.00%
200.00%
Key Financial Ratios
currentRatio
1.99
grossProfitMargin
74.5%
operatingProfitMargin
-1.21%
netProfitMargin
-6.97%
returnOnAssets
-1.14%
returnOnEquity
-3.14%
debtEquityRatio
0.02
operatingCashFlowPerShare
$0.37
freeCashFlowPerShare
$0.37
priceToBookRatio
10.21
priceEarningsRatio
-81.36
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Strategic execution and sales momentum:
- Ashutosh Kulkarni: 'Elastic delivered a strong second quarter supported by solid sales execution and customer commitments. In Q2, we meaningfully exceeded guidance across all revenue and profitability metrics. Revenue grew by 18% year over year. Cloud revenue grew by 25% year over year, and we delivered a non-GAAP operating margin of 18%.'
Gen AI and platform differentiation:
- Ashutosh Kulkarni: 'The momentum in Gen AI continues to build. In Q2, we saw strong demand for our vector database as customers increasingly adopted Elastic for building semantic search and retrieval augmented generation (RAG) applications.'
- Ashutosh Kulkarni: 'Our clear product differentiation and our relentless pace of innovation is helping us become a natural choice for customers building Gen AI applications.'
Customer consolidation and migration incentives:
- Ashutosh Kulkarni: 'We continue to invest in capabilities and incentives that make it possible for customers to migrate easily from incumbent solutions to Elastic... Elastic Express migration program and our search AI-powered automatic import functionality.'
- Janesh Moorjani: 'There were many deals that moved out of Q1 that we closed in Q2... not the main driver of strength, but shows momentum across pipeline and renewals.'
Product and ecosystem expansion:
- Ashutosh Kulkarni: 'BBQ, better binary quantization, 32x lower memory footprint; 30x faster quantization; AutoOps GA; OTEL native observability with Bedrock support.'
Leadership and governance:
- Ashutosh Kulkarni: 'Today, we are announcing that Janesh Moorjani will be leaving Elastic... Eric Pringle will assume Interim Chief Financial Officer duties.'
Market dynamics and GTM strategy:
- Koji Ikeda (Bank of America): 'Sales organization scale and guidance around seven-figure Gen AI commitments – are these for specific projects?' (answered by Ashutosh: commitments tracked at deal level; no discrete SKU for Gen AI; mix reported via sales teams.)
Elastic delivered a strong second quarter supported by solid sales execution and customer commitments. In Q2, we meaningfully exceeded guidance across all revenue and profitability metrics. Revenue grew by 18% year over year. Cloud revenue grew by 25% year over year, and we delivered a non-GAAP operating margin of 18%.
— Ashutosh Kulkarni
The innovations we are building into our search AI platform, the momentum we are gaining around generative AI, and the traction we are seeing with customers consolidating onto our platform give us great confidence in our future and in our ability to build a multibillion-dollar business over time.
— Ashutosh Kulkarni
Forward Guidance
Outlook and trajectory:
- The company remains confident in the Elasticsearch AI platform and Gen AI traction as key growth drivers. Management raised full-year revenue guidance to $1.451–$1.457 billion for fiscal 2025, representing approximately 15% YoY growth at the midpoint, in both reported and constant currency terms.
- Q3 guidance implies continued revenue growth with a range of $367–$369 million, representing ~12% YoY at the midpoint (13% in constant currency) and non-GAAP operating margin of about 15% with non-GAAP diluted EPS in the $0.46–$0.48 range.
- Profitability is expected to improve due to operating leverage despite selective investments in Gen AI and sales capacity in the second half of the year.
- Key risks to watch include: (1) the residual impact of Q1’s customer commitments shortfall on YoY growth, (2) fluctuations in consumption revenue on annual contracts and in Elastic Cloud’s month-to-month motion, (3) currency headwinds from a strong USD, and (4) seasonality in professional services.
- Investors should monitor Gen AI adoption cadence, especially large-scale deployments, platform consolidation by customers, and the velocity of renewal and expansion within the >$100K ACV cohort, as well as the evolution of RPO Trends and cloud consumption tailwinds.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
ESTC Focus
74.50%
-1.21%
-3.14%
-81.36%
PD
82.70%
-13.80%
-6.63%
-44.73%
GTLB
88.30%
-22.50%
2.01%
157.93%
DT
81.40%
11.20%
2.05%
90.55%
MDB
73.20%
-14.90%
-4.00%
-85.09%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Elastic enters the post-Q2 2025 period with a favorable growth trajectory driven by Gen AI adoption and platform consolidation across multiple IT domains. The company’s vector database and retrieval-augmented generation capabilities position Elastic as a critical runtime layer for enterprise Gen AI applications. The combination of strong gross margins, positive cash generation, and a levered but controllable cost structure supports an improving profitability profile as revenue scales. Key catalysts include: (1) continued enterprise spend on Gen AI and platform consolidation, (2) expansion of SIEM/CDR deployments, (3) broader OpenTelemetry-native observability adoption, and (4) further monetization of the Elastic AI ecosystem partnerships. Risks include FX headwinds, dependence on cloud consumption trends, RPO volatility, and competitive dynamics. Overall, the investment thesis favors a multi-year growth path with an improving margin profile as Elastic scales, while monitoring the near-term headwinds and leadership transition dynamics.
Key Investment Factors
Growth Potential
Elastic’s Gen AI strategy leverages a platform approach with Elastic’s vector database and semantic/hybrid search capabilities to power retrieval augmented generation. Growth drivers include increasing enterprise consolidation on Elastic across search, security, and observability, expanding Gen AI use cases, and rapid innovation (BBQ quantization, AutoOps, OTEL-native observability, Bedrock/OpenAI ecosystem integrations). The business is well-positioned to monetize large enterprise and multiyear contracts with >$100K ACV by leveraging a scalable land-and-expand model. The implied long-run trajectory is supported by 1,550 Gen AI cloud customers and a growing cohort (>240) spending >$100K annually, as well as multiple seven-figure deals in Q2.
Profitability Risk
Near-term headwinds include currency strength (USD), potential fluctuations in cloud consumption, and the risk that Q1 under-commitment reverberates into H2 YoY growth. GTM changes and a higher mix toward enterprise deals can cause quarterly variability in RPO and revenue. Competition from incumbents and pure-play AI/vector solutions could compress margin or limit share gains. Dependency on Gen AI adoption tempo and enterprise IT budgets remains a potential risk to target trajectory.
Financial Position
Elastic maintains a robust balance sheet with substantial liquidity (cash and cash equivalents of ~$658.5M and total liquid assets ~>$1.2B) and a net cash position (~$69M). Debt is modest (~$589M) with favorable leverage ratios (debt-to-equity ~0.025; debt ratio ~0.009). The company generated positive operating cash flow (~$38.4M) and ~/$37.7M of free cash flow in the quarter, supporting ongoing investments in growth while maintaining solid financial flexibility.
SWOT Analysis
Strengths
Strong YoY revenue growth (18%) with robust cloud contribution (25% YoY) and a healthy mix (Elastic Cloud 46% of revenue).
High gross margins (76.9%) and improving profitability dynamics with a non-GAAP operating margin around 18% in Q2.
Significant Gen AI momentum: 1,550 Gen AI cloud customers and >$100K ACV cohort of 240; multiple seven-figure deals.
Extensive product innovations (BBQ quantization, bit vectors, SIMD, AutoOps, OTEL-native observability) and a broad ecosystem of AI partnerships.
Strong balance sheet and cash generation enabling strategic investments while sustaining a net cash position.
Large installed base with cross-sell opportunities across search, security, and observability; multi-use-case platform consolidation.
Displacement-driven customer wins (SIEM and cybersecurity) highlight a compelling value proposition in security analytics.
Weaknesses
GAAP net loss (-$25.5M) and a modest operating margin in GAAP terms; near-term profitability remains a focus.
RPO remains relatively flat YoY in Q2 due to prior quarter shortfall, indicating near-term pipeline-to-backlog conversion variability.
Quarterly results can be sensitive to FX and consumption fluctuations, introducing near-term execution risk.
Leadership transition in the CFO role may create execution risk around near-term financial communications.
Opportunities
Gen AI-led growth through Retrieval-Augmented Generation on Elastic’s vector DB platform with widening enterprise adoption.
Expansion of SIEM and cloud detection/response (CDR) capabilities leveraging integrated AI analytics.
Continued go-to-market expansion via Elasticon events and new Elastic AI ecosystem partnerships to accelerate adoption.
AutoOps broadening operational efficiency for customers, unlocking higher wallet share per account.
Threats
Macro and currency headwinds could suppress YoY revenue growth and cloud consumption growth in the near term.
Competitive intensity in AI/vector databases and security analytics could compress pricing and raise acquisition costs.
Activation of Gen AI use cases across customers depends on IT budgets and enterprise readiness; slower-than-expected adoption could delay revenue migration.
Execution risk from leadership transition and potential clarity on longer-term GTM structure.