Stock prices of CrowdStrike (NASDAQ: CRWD) fell after the company reported its fiscal third-quarter results as it continues to deal with the aftermath of the network outage that hit its customers earlier this year. However, shares have largely recovered from that incident and are up about 36% on the year at the time of writing, even after the post-earnings pullback.
Let’s take a closer look at the cybersecurity company’s most recent results to see if this dip is a good opportunity to buy the stock.
Do you miss the morning spoon? Wake up with Breakfast news in your inbox every market day. Register for free »
While this summer’s major outage continues to impact CrowdStrike, the company is managing it well and seeing 97% gross customer retention in the quarter. However, the incident has led to a longer sales cycle and increased scrutiny of customers approving deals.
The company has also offered its customers so-called customer engagement packages, which may include a combination of new modules, additional subscription time and flexible payment terms (Flex Dollars), as a result of the outage. It said these packages impacted new annual recurring revenue (ARR), the annual value of customer subscription contracts, by $25 million.
However, the combination of these customer engagement packages and the Falcon Flex subscription model has helped increase adoption of the modules. In total, 66% of customers now use five or more modules, while 20% implement eight or more. Falcon Flex customers now deploy an average of nine of their modules. This helped CrowdStrike have a net dollar retention of 115% this quarter.
Revenue rose 29% to $1.01 billion, well ahead of the $979.2 million to $984.7 million the company had forecast. Subscription revenue rose 31% to $962.7 million.
ARR rose 27% to $4.02 billion. It added $153 million in new ARR during the quarter. ARR can be an indication of future revenue growth, and this figure was a slowdown from last quarter’s 32% increase. However, as noted above, this is influenced by the use of customer engagement packages.
The company’s adjusted earnings per share (EPS) rose 13% to $0.93. That easily exceeded expectations for adjusted earnings per share between $0.80 and $0.81.
CrowdStrike continues to throw away a large amount of cash, with operating cash flow of $326.1 million and free cash flow of $230.6 million. It ended the period with approximately $4.3 billion in net cash and short-term investments.
Looking ahead, CrowdStrike expected fourth-quarter revenue to be between $1.03 billion and $1.04 billion, with adjusted earnings per share between $0.84 and $0.86.
After lowering full-year expectations last quarter, the company has raised them slightly. Below you will find a table with the changes in the guidelines.
|
Forecasts for the full financial year |
||||
|---|---|---|---|---|
|
|
Original accompaniment |
Guidance June |
August guidance |
Current guidance |
|
Gain |
$3.92 billion to $3.99 billion |
$3.98 billion to $4.01 billion |
$3.89 billion to $3.90 billion |
$3.92 billion to $3.93 billion |
|
Custom EPS |
$3.77 to $3.97 |
$3.93 to $4.03 |
$3.61 to $3.65 |
$3.74 to $3.76 |
Data Source: CrowdStrike Earnings Reports. Note: Original guidance from March 2024.
CrowdStrike continues to deal with the fallout from the highly publicized outage that wreaked havoc across several industries last summer. While this impacts growth, the company also appears to be turning it into an opportunity by giving customers new modules and Flex Dollars, which could lead to adoption and customers paying for these modules in the future.
That said, the stock continues to trade at a pretty hefty multiple and above the valuation of its peers, with a price-to-sales (P/S) multiple of almost 18 times analysts’ estimates for next year. Meanwhile, the slowdown in ARR could translate into slower revenue growth in the coming quarters.
Overall, I think CrowdStrike will be a solid stock in the long term given its strong cybersecurity platform. It’s likely that customers will continue to consolidate around a few vendors for a unified cybersecurity platform, rather than relying on several specific solutions that may not always work best together.
That said, I think the stock is a bit ahead from a valuation perspective, especially as it is still dealing with the after-effects of the previous outage and the effect it could have on revenue growth.
Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.
On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
-
Nvidia: If you had invested $1,000 when we doubled in 2009, you would have $358,460!*
-
Apple: If you had invested $1,000 when we doubled in 2008, you would have $44,946!*
-
Netflix: If you had invested $1,000 when we doubled in 2004, you would have $478,249!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns November 25, 2024
Geoffrey Seiler has positions in SentinelOne. The Motley Fool holds and recommends positions in CrowdStrike. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.
CrowdStrike shares fall despite strong results. Is this a golden opportunity to buy the shares? was originally published by The Motley Fool
