Elastic N.V. (NYSE: ESTC), the “Search AI Company,” is under heavy pressure in Friday trading despite delivering better‑than‑expected fiscal second‑quarter 2026 results, raising full‑year guidance and leaning harder into generative AI and cloud growth.
After reporting earnings on Thursday evening, Elastic shares dropped roughly 11–12% in pre‑market trading on Friday, touching around $73 as multiple brokers cut their price targets. [1] By early afternoon, the stock had climbed back toward the low‑$80s, still down a high‑single‑digit percentage on the day and valuing the company at roughly $9 billion. [2]
Q2 FY26: Revenue up 16%, cloud up 22% – but growth is slowing
For the fiscal second quarter 2026 (ended October 31, 2025), Elastic reported: [3]
- Total revenue: about $423 million, up 16% year over year (15% in constant currency).
- Total subscription revenue:$398 million, up 17%.
- Elastic Cloud revenue: about $206 million, up 22% year over year.
- Sales‑led subscription revenue: roughly $349 million, up 18%.
- Current remaining performance obligations (cRPO):$971 million, up 17%.
On profitability, the picture is mixed:
- Non‑GAAP operating income was $70 million, a 16.5% margin, showing solid leverage in the model. [4]
- GAAP operating loss was about $8 million (‑2% margin).
- Non‑GAAP EPS came in at $0.64, beating analyst expectations by roughly 10–11%. [5]
- GAAP EPS was a loss of $0.48, with net loss widening to around $51 million versus roughly $25 million a year ago, even as revenue grew. [6]
European tech outlet IT‑Times highlighted that while revenue growth remains double‑digit, it has slowed from about 20% year‑on‑year in the prior quarter to 16% this quarter, and free cash flow compressed to around $26 million from about $38 million a year earlier. [7]
Elastic’s large‑customer metrics continue to move in the right direction: customers with annual contract value (ACV) above $100,000 rose to more than 1,600, up from over 1,550 last quarter and more than 1,420 a year ago, while net expansion rate held at roughly 112%. [8]
“Search AI Company” doubles down on product innovation and Jina AI deal
Beyond the numbers, Elastic used the quarter to sharpen its Search AI platform story across search, observability and security: [9]
- Rolled out cloud‑connected AutoOps, a monitoring and management tool to give self‑managed customers automated recommendations and real‑time remediation paths.
- Improved vector search with a new storage format dubbed DiskBBQ, designed to use less memory while scaling to larger datasets.
- Launched a fully managed OpenTelemetry Protocol (OTLP) endpoint and new capabilities in the Elastic Distribution of OpenTelemetry (EDOT), including central SDK management and added PHP support.
- Integrated Azure AI Foundry with Elastic Observability to monitor foundational LLMs, and expanded the Elasticsearch Open Inference API to support Google’s Gemini via Vertex AI.
- Added new device control capabilities to its XDR security offering.
Strategically, Elastic also acquired Jina AI, an open‑source specialist in multimodal and multilingual embeddings, rerankers and small language models, aimed at deepening Elastic’s AI‑driven search capabilities. [10]
The company continues to rack up third‑party validation, being named a Leader in multiple 2025 IDC MarketScape reports (observability, XDR, and general‑purpose knowledge discovery) and in Forrester’s Cognitive Search Platforms evaluation, while recent independent tests showed 99.3% effectiveness for its endpoint prevention and response solution. [11]
Why ESTC is selling off despite an earnings beat
On the surface, Elastic’s quarter checks most of the standard boxes: revenue and EPS beat expectations, cloud growth remains in the low‑20s, and guidance is going up, not down. [12]
Yet investors are hitting the sell button. Several themes are showing up across Friday’s research notes and news coverage:
- “Skinny beat” vs. elevated AI expectations
- Seeking Alpha notes that growth in key metrics such as sales‑led subscription and SaaS revenue came in below what some investors hoped for, leading to a perception of only a modest beat relative to high expectations around AI. [13]
- Concerns that Elastic isn’t the biggest AI spending winner
- A Reuters write‑up points out that at least 10 brokerages lowered their price targets after earnings. Scotiabank argued that while Elastic is benefiting from AI, it is not yet seen as the primary beneficiary of AI‑driven IT spending, especially compared with security and cloud peers. [14]
- The same note flags Palo Alto Networks’ acquisition of Chronosphere as a slight competitive negative for Elastic in observability. [15]
- Cloud growth and SaaS momentum under the microscope
- Multiple firms, including Jefferies and Wells Fargo, trimmed targets citing deceleration in cloud and subscription growth and the need to see AI tailwinds extend beyond core search into the broader platform. [16]
- Profitability still largely non‑GAAP
- While non‑GAAP margins are healthy, GAAP results remain in the red, with net losses widening year over year and free cash flow stepping down versus last year – something European coverage called out explicitly. [17]
The net result: good numbers, but not good enough to justify the prior AI‑rich valuation in the eyes of many investors. Reuters notes that Elastic shares are still down more than 17% year‑to‑date, even before today’s sell‑off. [18]
Wall Street resets price targets – but sees upside from current levels
Friday has effectively turned into a reset day for Elastic’s analyst coverage. Across the Street, targets are moving lower, but the vast majority of analysts still see upside from today’s price:
- Rosenblatt reiterated a Buy rating and $130 price target, estimating about 58% upside from the roughly $82 trading level and highlighting 16% revenue growth and 22% cloud growth as positives. [19]
- Cantor Fitzgerald kept a Neutral rating but cut its target from $94 to $85, citing strong execution – including record new logo TCV, five consecutive quarters of improved sales execution and accelerating ACV – while waiting for more consistent acceleration in cloud before getting more bullish. [20]
- BofA Securities lowered its target from $111 to $90, maintaining a Neutral stance. [21]
- Stifel maintained a Buy rating but reduced its target from $134 to $108, according to Benzinga’s summary of post‑earnings target cuts. [22]
- Jefferies, Wells Fargo, and Canaccord Genuity also trimmed their targets (to roughly $105, $75 and $115 respectively), flagging slower‑than‑hoped SaaS growth and execution risk even as they acknowledge Elastic’s long‑term AI opportunity. [23]
According to GuruFocus, 26 analysts’ 12‑month price targets on Elastic now average around $109 (range $75–$150), implying roughly 33% upside from the current ~$82 share price. The consensus recommendation from 29 firms sits near “Outperform”, and GuruFocus’ own fair‑value estimate (“GF Value”) is about $113.72, suggesting even more upside. [24]
In other words, near‑term expectations are being reset lower, but the Street still generally believes Elastic can compound value if it executes on its AI‑driven roadmap.
Guidance: higher full‑year outlook and steady double‑digit growth
Elastic’s updated guidance is another reason many analysts remain constructive despite today’s volatility. Management now expects: [25]
For Q3 FY26 (ending January 31, 2026):
- Revenue:$437–$439 million, about 15% year‑over‑year growth at the midpoint.
- Sales‑led subscription revenue:$364–$366 million, roughly 17% growth.
- Non‑GAAP operating margin: about 17.5%.
- Non‑GAAP EPS:$0.63–$0.65.
For full‑year FY26 (ending April 30, 2026):
- Revenue:$1.715–$1.721 billion, up 16% year over year, and raised by about $18 million versus prior guidance.
- Sales‑led subscription revenue:$1.417–$1.423 billion, up around 18%.
- Non‑GAAP operating margin: roughly 16.25%.
- Non‑GAAP EPS:$2.40–$2.46, nudged higher from previous guidance and ahead of prior Street estimates near $2.36.
On the capital allocation side, Elastic reminded investors that it has a $500 million share repurchase authorization and already bought back about 1.4 million shares in Q2 at an average price of $84.45, for roughly $114 million in total. [26]
Key questions for investors watching Elastic now
Nothing here is investment advice, but Friday’s reaction crystallizes the debate around ESTC going into 2026:
- Can Elastic turn AI buzz into sustained, higher growth?
Management and bulls argue that AI‑powered search, observability and security will increasingly favor Elastic’s platform – especially after the Jina AI deal and deeper integrations with Azure and Vertex AI. Skeptics want to see that translated into meaningful acceleration in cloud and subscription growth, not just solid mid‑teens numbers. [27] - How fast can GAAP profitability improve?
Non‑GAAP margins are healthy, but GAAP losses and reduced free cash flow suggest continued investment and stock‑based compensation weigh on the P&L. Watching the spread between GAAP and non‑GAAP over the next few quarters will be key. [28] - Will observability and security become larger growth engines?
Competitive moves like Palo Alto’s Chronosphere acquisition underscore how crowded observability has become. Elastic’s new AI‑driven observability features and strong third‑party ratings position it well, but investors will look for evidence of share gains in these segments. [29] - Valuation vs. execution risk
With the stock down sharply today but still carrying an AI premium, the market is essentially demanding consistent execution on the new guidance and clear proof that Elastic can be one of the long‑term winners in AI‑driven data search and analytics. [30]
For now, November 21, 2025, is shaping up as a reset moment: the numbers show a solid, profitable‑on‑a‑non‑GAAP‑basis software business growing in the mid‑teens with strong cloud and AI traction, while the stock reaction shows just how high the bar has become for anything related to artificial intelligence.
Disclaimer: This article is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security.
References
1. www.tradingview.com, 2. www.stocktitan.net, 3. www.nasdaq.com, 4. www.nasdaq.com, 5. stockstory.org, 6. www.it-times.de, 7. www.it-times.de, 8. www.it-times.de, 9. ir.elastic.co, 10. ir.elastic.co, 11. ir.elastic.co, 12. stockstory.org, 13. seekingalpha.com, 14. www.tradingview.com, 15. www.tradingview.com, 16. www.investing.com, 17. www.it-times.de, 18. www.tradingview.com, 19. www.investing.com, 20. www.investing.com, 21. www.gurufocus.com, 22. www.benzinga.com, 23. www.investing.com, 24. www.gurufocus.com, 25. ir.elastic.co, 26. ir.elastic.co, 27. ir.elastic.co, 28. www.it-times.de, 29. www.tradingview.com, 30. www.gurufocus.com
