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Search software is essential, helping businesses navigate vast amounts of data, turning chaos into clarity. As organizations increasingly rely on data-driven decision-making, efficient search capabilities enhance productivity and streamline operations.
While concerns loom that artificial intelligence (AI) spending is siphoning funds away from traditional enterprise software budgets, there's a silver lining. The rise of AI applications can actually bolster search software firms, improving search algorithms and enabling more accurate and context-aware results.
In this environment, search software firm Elastic N.V. (ESTC) is poised to thrive, according to William Blair analyst Jake Roberge, who sees a buying opportunity in the stock on AI upside.
About Elastic Stock
Headquartered in Mountain View, Elastic (ESTC) has a market cap of $8.37 billion. The company specializes in search AI, transforming raw data into real-time answers at scale. Powered by the Elastic Search AI Platform, its solutions deliver insights across search, observability, and security.
Like many other software stocks, ESTC has underperformed recently. The shares are down 27.6% on a year-to-date basis, significantly lagging the broader market. Most of that loss is thanks to a poorly received fiscal Q1 earnings report that sent the stock spiraling down by 26.5% on Aug. 30.
In terms of valuation, the stock is priced at 5.87 times sales, a steep discount to its own five-year average multiple of 11.04x.
Elastic Stock Crashes on Weak Guidance
Elastic reported its fiscal Q1 2025 earnings results after the bell on Aug. 29. The company raked in a total revenue of $347 million, up 18% annually, with cloud revenue surging 30% annually to $157 million. Plus, its adjusted EPS of $0.35 grew 40%, topping Wall Street’s forecasts.
The company reported an expanding customer base in Q1, boasting over 1,370 customers with an Annual Contract Value (ACV) exceeding $100,000, up from around 1,190 in Q1 of fiscal 2024. The total subscription customer count also climbed to about 21,200, compared to around 20,500 in the year-ago quarter.
Elastic’s operating cash flow reached $53 million, and adjusted free cash flow surged 30.2% year-over-year to $63.9 million. Plus, with roughly $1.15 billion in cash and marketable securities, Elastic’s liquidity position looks solid, setting the stage for future growth.
However, the shares cratered on weak guidance. Management projected total revenue between $1.436 billion and $1.444 billion - lower than not just earlier forecasts, but also Wall Street’s expectations, and indicating a slower growth rate than last year's 19%.
Non-GAAP operating margin is expected to be approximately 12.5%, while non-GAAP EPS is projected to be between $1.52 and $1.56 in fiscal 2025.
What Do Analysts Expect for Elastic N.V. Stock?
In the immediate aftermath of its Q1 earnings release, multiple brokerage firms adjusted their price target on Elastic. Bank of America downgraded the stock from “Buy” to “Neutral,” and cut its price target from $140 to $90, citing heightened disruption risks and weak international demand.
However, William Blair is ready to upgrade Elastic to “Outperform” from “Market Perform.” Analyst Jake Roberge sees a “large” opportunity for the company in AI, and described the “noise” around the stock as a “nice entry point” to pick up shares.
ESTC stock has a consensus “Moderate Buy” rating overall. Of the 24 analysts in coverage, 15 recommend a “Strong Buy,” one advises a “Moderate Buy,” and the remaining eight give a “Hold” rating.
The average analyst price target of $103.09 indicates a potential upside of 26.4% from the current price levels. The Street-high price target of $160 suggests that Elastic stock could rally as much as 96.1%.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
