Elastic shares fall 25% on lower revenue forecasts due to changes in customer segmentation

Elastic NV shares fell nearly 25% in late trading today after the enterprise search software company warned of slower growth and missed expectations while also posting a solid quarterly earnings report.

For the first quarter of fiscal 2025, which ended July 31, Elastic reported adjusted earnings per share of 35 cents, up from 25 cents per share in the prior-year quarter, on revenue of $347 million, up 18% year over year. Both results were decent, as analysts were expecting adjusted earnings per share of 25 cents on revenue of $344.66 million.

Elastic ended the quarter with 1,370 customers with annual contract value of more than $100,000, up from 1,330 in the previous quarter and 1,190 in the same quarter last year. The company’s total subscriptions at the end of July were about 21,000, up from 20,500 at the same time last year.

Cloud revenue for the quarter was $157 million, up 30% year over year. Cash flow for the quarter was $53 million, and Elastic ended the quarter with $1.147 billion in cash, cash equivalents, and marketable securities.

Highlights of the quarter included the launch of Elsastic Express Migration, a new incentive program designed to help organizations quickly and efficiently deploy Elastic’s Search AI. The company also announced its intention to add support for the Affero General Public License, a copyleft license from the Free Software Foundation, as a licensing option for the free portion of its source code.

CEO Ash Kulkarni started the earnings report on an upbeat note, noting that the quarter’s results were solid and beat previous forecasts, but there was a catch and a reason why Elastic shares are falling so dramatically after the close.

“We had a slower start to the year as our client payable volume was impacted by segmentation changes we made earlier in the year that are taking longer than expected to settle,” Kulkarni wrote. “We are taking steps to address this, but it will impact our revenue this year.”

With that warning, Elastic said it expects second-quarter adjusted earnings per share of 37 cents to 39 cents on revenue of $353 million to $355 million. The earnings per share forecast was higher than the 34 cents analysts expected, but revenue was lower than the $360.8 million expected.

It was a similar story for Elastic’s full-year guidance, where the company projected earnings per share of $1.52 to $1.56 on revenue of $1.436 billion to $1.444 billion. The earnings per share guidance was higher than the expected $1.42, but like the second-quarter guidance, revenue was lower than analysts were expecting $1.478 billion.

Photo: Elastic