AI Adoption and Enterprise Commitments Drive Elastic’s Growth Acceleration

Elastic’s AI momentum is translating into larger customers and stronger forward demand

Elastic (ESTC) shares jumped roughly 17% Friday after the search and AI platform company reported fiscal first-quarter revenue of $478 million, up 15% year over year, and adjusted earnings of $0.70 per share. Both measures exceeded Wall Street expectations.

The earnings reaction extended beyond the quarterly beat. Sales-led subscription revenue accelerated, Elastic posted record additions of large enterprise customers, AI adoption increased sharply, and remaining performance obligations grew faster than reported revenue. Management also raised its fiscal 2027 outlook.

Key Points

• Elastic reported $478 million in revenue, up 15%, while sales-led subscription revenue increased 18% to $399 million and non-GAAP operating margin reached 16.2%.
• Elastic added a record 80-plus customers spending at least $100,000 annually, while AI adoption among those customers climbed to more than 37% from about 21% a year ago.
• Current remaining performance obligations rose 21% to $1.2 billion and total RPO increased 27% to $1.9 billion as Elastic raised its fiscal 2027 revenue and earnings outlook.

Enterprise Growth Strengthens Elastic’s Forward Demand Indicators

Elastic's Q1 results showed growth across both reported revenue and measures of contracted future business.

Total revenue increased 15% year over year to $478 million, exceeding the roughly $470 million analyst expectation cited in the source material. Sales-led subscription revenue reached $399 million, increasing 18% as reported and 17% on a constant-currency basis. That represented an acceleration from 16% constant-currency growth in the previous quarter.

The company's contracted commitments grew even faster. Current remaining performance obligations, or cRPO, increased 21% to $1.2 billion, while total remaining performance obligations rose 27% to $1.9 billion. Management said customers are increasingly making multiyear commitments to Elastic's platform.

Large-customer growth was another important part of the quarter. Elastic added more than 80 customers with annual contract value of at least $100,000, its largest quarterly increase. The company now has more than 1,800 customers in that group, which represents 90% of sales-led subscription revenue.

Management attributed the record additions to changes made to Elastic's enterprise sales approach, along with improving sales capacity, productivity and pipeline generation.

Cloud performance also strengthened. Annual cloud growth increased to 27% from 26% in the previous quarter, with management reporting healthy consumption against customer commitments.

Why Is AI Adoption Becoming More Important to Elastic’s Growth?

Elastic reported a significant increase in AI adoption among its largest customers.

More than 37% of customers spending at least $100,000 annually now use Elastic for AI applications, compared with approximately 21% a year ago. That represents more than 670 large customers, including about 70 net additions during Q1.

Management also said customers using Elastic's AI capabilities are expanding slightly faster than customers that are not using them.

Elastic is positioning Elasticsearch as a data and retrieval layer for AI applications working across structured and unstructured information. Its capabilities include text, vector and hybrid search, while the company has expanded its products for cloud, on-premises and air-gapped AI deployments.

The company also introduced additional capabilities across observability and security. Elastic launched Columnar Mode for time-series metrics, added native Prometheus ingestion and acquired Deductive AI, whose technology is focused on AI-driven site reliability engineering.

Within security, Elastic is developing AI capabilities designed to automate parts of threat investigation and validation. Management said customer demand during Q1 was particularly strong across search and AI and security.

The combination of rising AI penetration and large-customer growth provides additional context for Elastic's contracted commitments. The $100,000-plus customer group accounts for the vast majority of sales-led subscription revenue, making adoption trends within that cohort particularly relevant to the company's overall growth.

Raised Guidance Signals Confidence in Second-Half Acceleration

Elastic raised its fiscal 2027 outlook after the stronger first quarter.

For Q2, the company expects revenue of $486 million to $487 million and sales-led subscription revenue of $407.5 million to $408.5 million. Non-GAAP operating margin is projected at approximately 19%, while adjusted EPS is expected between $0.80 and $0.82.

For the full fiscal year, Elastic now expects revenue of $1.998 billion to $2.010 billion and sales-led subscription revenue of $1.682 billion to $1.694 billion. Adjusted EPS is projected at $3.29 to $3.37.

Management expects both total revenue and sales-led subscription revenue growth to accelerate during the second half, with the fourth quarter producing the highest year-over-year growth rate of the fiscal year.

Profitability remains an important part of that outlook. Elastic generated a non-GAAP operating margin of 16.2% during Q1, exceeding its guidance. Subscription gross margin was 81%, total gross margin was 77%, and adjusted free-cash-flow margin reached 30% despite $13 million of cash payments for restructuring and other charges.

For fiscal 2027, Elastic expects a non-GAAP operating margin of approximately 19.4% and an adjusted free-cash-flow margin of 21.5%.

One metric has yet to reflect the improving growth indicators. Net expansion rate, which measures changes in spending by existing customers, slipped to 111% from 112% in the previous quarter. Management said the measure reflects the trailing four quarters and expects it to improve as constant-currency revenue growth accelerates.

Elastic also returned approximately $40 million to shareholders through the repurchase of roughly 800,000 shares during Q1. The company had deployed $380 million under its original $500 million program and authorized an additional $500 million for future repurchases.

What It Means for Investors

Elastic's earnings reaction reflects more than a quarterly revenue and earnings beat. The company paired stronger results with several forward-looking business indicators that improved simultaneously.

Sales-led subscription revenue accelerated, cRPO grew 21%, total RPO increased 27%, and Elastic recorded its largest quarterly addition of customers spending at least $100,000 annually. At the same time, AI penetration within that strategically important customer group increased from about 21% to more than 37% in one year.

Those trends are now being reflected in management's outlook. Elastic raised fiscal 2027 revenue and earnings guidance and expects revenue growth to accelerate during the second half while maintaining a higher operating-margin profile.

The main contrast is net expansion rate, which declined one percentage point to 111%. That means the improvement in bookings, contracted commitments and AI adoption has not yet produced an increase in the company's trailing customer-expansion measure.

For investors following ESTC stock news, the key business measures are therefore becoming more interconnected: large-enterprise additions, AI adoption, customer consumption, cRPO and RPO growth, net expansion and margins all provide evidence of how Elastic's recent sales momentum is translating into reported financial performance.

Conclusion

Elastic began fiscal 2027 with stronger revenue, expanding enterprise adoption and improving profitability, while its forward-demand measures grew considerably faster than its reported top line.

Revenue increased 15%, sales-led subscription revenue rose 18%, and more than 80 large customers were added during the quarter. AI adoption among those customers climbed to more than 37%, while cRPO and total RPO increased 21% and 27%, respectively.

Management responded by raising its annual outlook and maintaining expectations for faster growth during the second half. The roughly 17% rise in ESTC stock shows a strong investor reaction to that combination of AI adoption, enterprise customer growth, contracted commitments and higher guidance.

The remaining measure to watch is net expansion. At 111%, it declined slightly from the previous quarter, leaving a gap between Elastic's improving recent demand indicators and a metric based on customer spending trends over the trailing period.

FAQs

Why did Elastic stock rise after earnings?

Elastic shares rose roughly 17% after the company exceeded quarterly revenue and earnings expectations, reported record large-customer additions and stronger AI adoption, and raised its fiscal 2027 outlook.

How quickly is Elastic’s AI adoption growing?

More than 37% of Elastic customers spending at least $100,000 annually are now using the platform for AI applications, up from approximately 21% a year ago. More than 670 large customers now use Elastic for AI.

What were Elastic’s Q1 fiscal 2027 results?

Elastic reported total revenue of $478 million, up 15% year over year, and sales-led subscription revenue of $399 million, up 18%. Adjusted EPS was $0.70, while non-GAAP operating margin reached 16.2%.

What is Elastic’s fiscal 2027 guidance?

Elastic expects fiscal 2027 revenue of $1.998 billion to $2.010 billion, sales-led subscription revenue of $1.682 billion to $1.694 billion, and adjusted EPS of $3.29 to $3.37. Non-GAAP operating margin is expected to be approximately 19.4%.

What happened to Elastic’s net expansion rate?

Elastic's net expansion rate declined to 111% from 112% in the previous quarter. Management said the metric reflects trailing four-quarter performance and expects it to improve as constant-currency revenue growth accelerates.

This article was created with AI assistance and reviewed by an editor. For details, please refer to our Terms of Use.

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