What Happened?
Shares of search software company Elastic (NYSE:ESTC) jumped 19.3% in the afternoon session after the company reported strong fiscal third-quarter 2025 results that exceeded analysts' billings expectations, leading to a beat on revenue, EPS, and adjusted operating income. Sales grew 17% year-on-year, driven by strong demand for Elastic Cloud, which saw a 26% increase, reflecting continued momentum in cloud adoption and the company's push toward AI-powered search capabilities. That momentum makes sense, especially with businesses increasingly consolidating AI search capabilities on a single platform.
Looking ahead, it raised its full-year EPS guidance and provided a 2025 revenue outlook that surpassed estimates. Overall, we think this was still a solid quarter with some key areas of upside.
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What The Market Is Telling Us
Elastic’s shares are somewhat volatile and have had 11 moves greater than 5% over the last year. But moves this big are rare even for Elastic and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 3 months ago when the stock gained 30.8% on the news that the company reported a "beat and raise" quarter. Elastic blew past analysts' billings and revenue estimates, primarily driven by strong growth in the cloud business, which rose 25% year on year. Despite some of the challenges recorded in recent quarters, the improved top-line performance suggests that the focus on key enterprise and high-potential mid-market customers is bearing fruit.
On the product front, the company observed signs of accelerating demand for its Generative AI offerings. New customer commitments with GenAI almost doubled in dollar volume compared to the previous quarter, and three of the deals signed were greater than $1 million in annual contract value. Earnings also exceeded expectations as the sales strength combined with disciplined spending and improved efficiency.
As a result, the company was able to provide encouraging guidance as it raised its revenue, profits, and earnings forecast for the full year.
Overall, we think this was a solid "beat-and-raise" quarter.
Following the results, Baird upgraded the stock from Neutral to Outperform (Buy), citing "a significant unexpected turnaround in execution, evident in Q2′s results, highlighted by strong commitments, healthy consumption, improved win-rates and GenAI-inflection validating our medium-term/long-term thesis."
Elastic is up 15% since the beginning of the year, but at $114.01 per share, it is still trading 14.8% below its 52-week high of $133.81 from February 2024. Investors who bought $1,000 worth of Elastic’s shares 5 years ago would now be looking at an investment worth $1,544.
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