On Friday, BofA Securities revised its stance on Elastic NV (NYSE:ESTC) stock, moving from a Buy to a Neutral rating and reducing its price target to $94 from the previous $140. The adjustment follows concerns about disruptions in the company's sales organization and softer demand in the EMEA region.
The downgrade was prompted by issues experienced during a strategic sales realignment, which have increased the risks for the company and led to a downward revision of the FY25 revenue growth guidance by approximately 2%. The new forecast suggests a low teens revenue growth rate as the fiscal year closes.
BofA Securities acknowledged Elastic's potential as a disruptive force and a long-term share gainer in the fields of general AI, search, observability, and security. Despite this positive outlook, the firm noted that correcting the execution missteps within the sales organization could span several quarters.
The firm's analyst pointed out that the balance of risk and reward for Elastic's shares is now considered even, pending more definitive evidence that the company has resolved its current issues. Consequently, BofA Securities has also lowered its forecast due to the updated guidance and the risks associated with the company's execution.
In other recent news, Elastic NV reported an 18% year-over-year revenue increase in the first quarter of fiscal 2025, reaching $347 million. The company also saw a significant 30% YoY growth in cloud revenue, which now accounts for 45% of the total revenue. Despite these positive figures, Elastic NV acknowledged a decrease in customer commitment volumes attributed to recent internal sales segmentation changes and tighter customer budget constraints.
The company remains optimistic about its market opportunities, particularly in generative AI (GenAI), and is committed to improving sales execution. Elastic NV has also introduced new capabilities and announced Elasticsearch licensing changes to support its open-source community. The company provided Q2 revenue guidance of $353 million to $355 million and full-year guidance of $1.436 billion to $1.444 billion.
These are recent developments for Elastic NV, a company that continues to navigate internal changes and market conditions while maintaining revenue growth. The company's focus on GenAI and changes to its licensing model indicate its commitment to innovation and open-source principles. With a strategy in place to improve sales execution and a conservative outlook for deal closures, Elastic NV is positioning itself to capitalize on market opportunities.
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