ESTC Q3 Deep Dive: AI Adoption, Platform Consolidation, and Large Deals Drive Results

Search AI platform provider Elastic (NYSE:ESTC) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 15.9% year on year to $423.5 million. Guidance for next quarter’s revenue was optimistic at $438 million at the midpoint, 2% above analysts’ estimates. Its non-GAAP profit of $0.64 per share was 11.1% above analysts’ consensus estimates.

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StockStory’s Take

Elastic’s third quarter results were characterized by robust revenue growth, driven by both increased adoption of its AI-enabled platform and a significant uptick in large enterprise deals. Despite these operational highlights, the market reacted negatively, with shares down sharply after earnings. Management attributed the quarter’s performance to momentum across cloud and self-managed offerings, as well as a series of multimillion-dollar customer commitments, especially in the security and observability segments. CEO Ashutosh Kulkarni emphasized the impact of “disciplined sales execution,” noting that the company secured high-value commitments across a range of industries and geographies, reflecting broad-based demand for Elastic’s solutions.

Looking ahead, Elastic’s updated guidance is underpinned by continued momentum in sales-led subscription revenue and further expansion of its AI and security offerings. Management pointed to a healthy sales pipeline and rising adoption of Gen AI use cases among existing customers as factors supporting its increased outlook for the next quarter and full year. CFO Navam Welihinda stated that the company’s focus remains on balancing growth with disciplined spending, aiming to sustain operating leverage and profitability while capitalizing on opportunities in generative AI, observability, and security. Kulkarni added, “Our foundational investments in search uniquely position Elastic to deliver AI to enterprises everywhere.”

Key Insights from Management’s Remarks

Elastic’s management linked third quarter growth to strong adoption of AI-driven solutions, a record number of large enterprise deals, and continued progress in platform consolidation, especially in security and observability.

• AI adoption across solutions: Management highlighted rising use of Elastic’s AI platform for both semantic search and the development of agentic applications, citing its strength in handling unstructured data as a competitive differentiator. This capability helped the company win new customers and expand use cases with existing clients across industries.
• Large deal momentum: The company secured over 30 customer commitments exceeding $1 million in annual value, with five surpassing $10 million and two above $20 million—marking a new high. These included significant wins in security, such as a major deal with the U.S. Cybersecurity and Infrastructure Security Agency (CISA) and a global chemical manufacturer.
• Platform consolidation: Elastic reported increased customer migration from legacy software to its unified platform, particularly for security and observability. This trend supported the growth in both self-managed and cloud deployments and reflected organizations’ desire to streamline infrastructure and reduce costs.
• Growth in Gen AI use cases: Over 2,450 customers now use Elastic Cloud for generative AI, with nearly a quarter of its $100,000-plus contract cohort leveraging the platform for AI-related projects. Management identified this cohort as a key driver for future expansion.
• Product innovation and acquisitions: The quarter saw the launch of new AI features, such as AgentBuilder for rapid AI agent creation, and the acquisition of GINA AI, which brings advanced multilingual and multimodal models to the platform. These moves aim to strengthen Elastic’s position in AI-driven data retrieval and context engineering.

Drivers of Future Performance

Elastic’s outlook is shaped by ongoing demand for AI-powered use cases, large enterprise account expansion, and disciplined cost management as it pursues high-teens sales-led subscription growth.

• AI and Gen AI tailwinds: Management expects continued momentum as organizations increasingly adopt generative AI in their operations, with Elastic’s strengths in context engineering and data relevance driving customer expansion and new use cases.
• Enterprise and public sector expansion: The company is focused on growing its footprint with large customers, leveraging recent multi-year deals and sector-specific wins (like the CISA agreement) to drive further penetration into security and observability markets.
• Emphasis on operational efficiency: CFO Navam Welihinda underscored a commitment to balancing growth with disciplined spending, with operating margin targets reliant on ongoing cost control and efficiency improvements. Management acknowledged seasonality and deal timing as potential sources of variability in quarterly performance.

Catalysts in Upcoming Quarters

In the coming quarters, we will be tracking (1) the pace of generative AI adoption and expansion within Elastic’s enterprise customer base, (2) execution on recent large-scale public sector and Fortune 500 deals, and (3) the company’s ability to drive further platform consolidation, especially as customers migrate from legacy tools. Progress on new AI product launches and the impact of the GINA AI integration will also be key signposts for Elastic’s ongoing differentiation.

Elastic currently trades at $71.50, down from $82.08 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free for active Edge members).

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