Last Update29 Jul 25Fair value Decreased 15%
Despite a notable improvement in Elastic's profitability, as evidenced by a higher net profit margin and a sharply reduced forward P/E ratio, the consensus analyst price target has been significantly cut from $130.14 to $110.48.
What's in the News
- Issued Q1 FY2026 revenue guidance of $396–$398 million (14% year-over-year growth at midpoint) and FY2026 revenue guidance of $1.655–$1.670 billion (12% year-over-year growth at midpoint).
- Entered a five-year strategic collaboration agreement with AWS to accelerate AI-native enterprise solutions, focusing on joint product integrations, generative AI, seamless workload migrations to Elastic Cloud on AWS, and support for highly regulated industries.
- Elastic's Search AI Platform and AWS services will integrate to support generative AI features, cost-efficient serverless solutions, agentic AI interoperability, and improved data protection.
- Expanded recognition within the AWS Partner Network, including being named AWS Global Generative AI Infrastructure and Data Partner of the Year and receiving competency designations for Government and Education sectors.
- Launched hybrid search capabilities for Microsoft’s Semantic Kernel, making Elastic’s vector database the first to offer this feature, enabling advanced information retrieval by combining multiple search techniques.
Valuation Changes
Summary of Valuation Changes for Elastic
- The Consensus Analyst Price Target has significantly fallen from $130.14 to $110.48.
- The Net Profit Margin for Elastic has significantly risen from 2.74% to 4.64%.
- The Future P/E for Elastic has significantly fallen from 284.00x to 158.85x.
Key Takeaways
- Leadership in AI-driven search, analytics, and security, paired with innovative product launches, strengthens differentiation and drives growth through automation and digital transformation demand.
- Expansion of cloud-native offerings and deep partnerships with leading cloud providers increases recurring revenues, customer retention, and market reach, supporting margin and cash flow improvements.
- Elastic's growth and profitability are threatened by reliance on enterprise customer expansion, rapid AI shifts, heavy R&D spending, cloud partner risks, and macroeconomic uncertainty.
Catalysts
About Elastic- A search artificial intelligence (AI) company, provides software platforms to run in hybrid, public or private clouds, and multi-cloud environments in the United States and internationally.
- The sustained momentum in enterprise adoption of Elastic's AI-enabled platform-including its vector database leadership, GenAI-driven search, and advanced analytics-suggests significant future revenue growth as organizations accelerate automation and digital transformation initiatives in response to explosive data growth and demand for real-time insights.
- Strategic expansion of cloud-native offerings, exemplified by Elastic Cloud and the new Serverless platform, positions Elastic to capitalize on the continuing shift of workloads to the cloud, driving higher recurring revenues, improved margins, and enhanced operating leverage as cloud surpasses 50% of subscription revenue.
- Deepening partnerships with hyperscalers (AWS, Google Cloud, Microsoft), and integration with infrastructure leaders like NVIDIA, are broadening Elastic's global reach and access to large-scale enterprise customers, likely boosting top-line growth and increasing net retention rates through joint go-to-market motions and technical integration.
- Persistent demand for advanced security, observability, and data search from organizations facing heightened cyber threats (evidenced by major customer wins such as Siemens) is underpinning both new customer acquisition and upsell opportunities, pointing toward growth in average contract value and long-term customer stickiness, which should support gross margin expansion.
- Ongoing product innovation-such as the introduction of unique technologies like Better Binary Quantization and AI-powered workflow automation (through the Keep acquisition)-is maintaining Elastic's differentiation in a rapidly growing market and enabling cost efficiencies for customers, setting the stage for both revenue acceleration and gradual improvement in operating margins and free cash flow.
Elastic Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Elastic's revenue will grow by 13.3% annually over the next 3 years.
- Analysts assume that profit margins will increase from -7.3% today to 4.6% in 3 years time.
- Analysts expect earnings to reach $100.0 million (and earnings per share of $0.49) by about July 2028, up from $-108.1 million today. The analysts are largely in agreement about this estimate.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 158.9x on those 2028 earnings, up from -86.7x today. This future PE is greater than the current PE for the US Software industry at 46.9x.
- Analysts expect the number of shares outstanding to grow by 2.71% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 8.05%, as per the Simply Wall St company report.
Elastic Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Elastic's reliance on large enterprise and mid-market sales for future growth emphasizes the need for constant expansion of high-value customer cohorts; any slowdown in new large customer acquisition, increased competition from hyperscalers, or failure to further penetrate these segments could impact future revenue growth and place pressure on expanding gross and operating margins.
- The increasing focus on generative AI (GenAI) and vector database technology positions Elastic well for emerging enterprise use cases, but the rapid evolution and potential commoditization of AI-native data platforms-especially by larger cloud providers-pose a risk of technological obsolescence or customer churn, potentially reducing long-term revenue and limiting sustained earnings growth.
- Heavy ongoing R&D and go-to-market investments to maintain innovation and sales momentum, including new specialist teams and product development in security and observability, could pressure net margins and profitability-particularly if anticipated top-line growth from these bets does not materialize as quickly or at the expected scale.
- The growing importance of cloud channel partnerships (AWS, Google, Nvidia, etc.) increases Elastic's exposure to hyperscaler pricing, integration, and marketplace dynamics; risk of cloud providers shifting strategy, prioritizing native solutions, or intensifying price competition could erode Elastic's gross margins and long-term customer retention.
- Conservative fiscal year guidance-citing macroeconomic uncertainty, especially in the U.S. public sector-suggests revenue growth could moderate if broader consumption or budget headwinds extend beyond the assumed verticals or regions, which would negatively impact earnings and undermine the pace of transition to a multibillion-dollar business.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $110.48 for Elastic based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $143.0, and the most bearish reporting a price target of just $75.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.2 billion, earnings will come to $100.0 million, and it would be trading on a PE ratio of 158.9x, assuming you use a discount rate of 8.0%.
- Given the current share price of $88.78, the analyst price target of $110.48 is 19.6% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
How well do narratives help inform your perspective?
Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.