A class action lawsuit was filed against Elastic N.V. (ESTC) by Levi & Korsinsky on February 11, 2025. The plaintiffs (shareholders) alleged that they bought ESTC stock at artificially inflated prices between May 31, 2024, and August 29, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Elastic N.V. stock during that period can click here to learn about joining the lawsuit.
Elastic N.V. is an American-Dutch software and analytics company that positions itself as a “Search AI Company.” It’s AI-powered search solutions enable organizations, customers, and employees find information more efficiently and accurately, while also protecting from cyber-attacks.
Elastic states that its sales teams are structured primarily by geography and secondarily by customer segments. The company’s claims about the efficiency of its sales teams and the recent changes made to its customer segments in the Americas are at the heart of the current complaint.
Elastic N.V.’s Misleading Claims
According to the lawsuit, Elastic N.V. and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about changes to the company’s sales operations, and ancillary issues, from SEC filings and related material.
For instance, during an earnings call held in the Class Period, the CFO mentioned that the company was focusing on customers with a higher propensity for growth to boost its revenues. In the same call, the CEO noted that they had recently completed a successful sales campaign with the same strategy.
Furthermore, in its annual report filed on June 14, 2024, the company noted that its sales teams are organized primarily by geography and then based on customer segments. Also, Elastic depended on its internal sales representatives to generate potential leads based on their likelihood of converting into purchases. The company followed sales leads through both its direct sales force and partner channels, such as cloud marketplaces.
However, subsequent events (discussed below) revealed that the defendants knowingly misled investors about the changes implemented in the sales teams’ structure, which ultimately impacted the company’s revenue generating capabilities.
Plaintiffs’ Arguments
The plaintiffs maintain that the defendants deceived investors by lying and withholding critical information about the business practices and prospects during the Class Period. Importantly, the defendants are accused of misleading investors about the company’s sales prospects, despite knowing that the changes in the sales teams’ structure was taking longer than anticipated.
The information became clear after the market closed on August 29, 2024, when Elastic N.V. released its Q1FY25 results. Unfortunately, the company significantly lowered its full-year Fiscal 2025 revenue guidance to a range of $1.436 billion to $1.444 billion, representing 14% year-over-year growth at the midpoint. This was lower than its prior guidance range, representing 16% year-over-year growth at the midpoint.
The company attributed the revised outlook to changes made in its sales teams at the start of the year, which were taking longer than expected to stabilize. This had led to a slow start to the year in terms of customer leads and volume of customer commitments. Following the news, ESTC stock plunged 26.5% on August 30, causing massive damage to shareholder returns.
To conclude, the defendants allegedly misled investors about the potential benefits from the segmentation changes and their impact on the company’s revenues. In the past year, ESTC stock has lost 15.2%.
