CrowdStrike (NASDAQ: CRWD) published its latest earnings report on Tuesday, June 4. For the first quarter of fiscal 2025, which ended April 30, the cybersecurity company’s revenues rose 33% year over year to $921 million, beating analyst estimates by $16 million. Adjusted earnings per share (EPS) grew 63%, beating the consensus forecast by $0.04.
CrowdStrike followed the profit margin by raising full-year revenue and profit guidance. Share prices have risen in response to that glowing report, but does the stock still have room to run after more than doubling in the past 12 months? Let’s take a look at its growth trajectory and valuations to see where it could go in a year’s time.
Another quarter of stabilizing growth
CrowdStrike stands out in the crowded cybersecurity market because it offers its endpoint security tools only as cloud-based services rather than on-site devices. This approach is cheaper, requires no on-site maintenance and is easier to scale as an organization grows. It also locks its customers into sticky cloud-based plans.
CrowdStrike’s first-mover advantage in the cloud-native space allowed it to disrupt many legacy cybersecurity companies. That’s why revenue grew at an astonishing compound annual growth rate (CAGR) of 65% between fiscal 2019 and fiscal 2024 (which ended in January 2024). But growth cooled last year as macroeconomic headwinds made it harder to acquire new customers and cross-sell additional cloud-based modules.
Revenue still rose 36% in fiscal 2024, but annual recurring revenue (ARR) growth slowed as net new ARR (the amount of ARR from new customers) declined in the first half of the year. Those two consecutive quarters of declining net new ARR have spooked the bulls, but this closely watched metric accelerated again in the second half of the year. As a result, the company’s revenue growth has largely stabilized over the past two quarters.
|
Metric |
Q1 2024 |
Q2 2024 |
Q3 2024 |
Q4 2024 |
Q1 2025 |
|---|---|---|---|---|---|
|
Termination of ARR Growth (YYY) |
42% |
37% |
35% |
34% |
33% |
|
Net New ARR Growth (YY) |
(8%) |
(10%) |
13% |
27% |
22% |
|
Sales growth (YYY) |
42% |
37% |
35% |
33% |
33% |
Data source: CrowdStrike. YOY = Year-on-year.
CrowdStrike now expects full-year revenue to rise 30% to 31%, compared to its previous expectation of 28% to 31% growth. It attributed that robust growth to market share gains, new government contracts and the expansion of its platform with more generative AI features. By the end of the first quarter, 44% of customers had adopted at least six of the modules, up from 43% in the fourth quarter and 40% in the previous year’s quarter.
CrowdStrike continues to grow at a healthy clip, while many of its peers – including Palo Alto Networks (NASDAQ: PANW) — continues to struggle to acquire new customers in this challenging environment. During the first quarter conference call, CrowdStrike CEO George Kurtz poked fun at Palo Alto Networks’ recent platformization strategy (which is currently driven by free trials and deferred revenue deals) by saying that “when a platform delivers real value, You don’t have to give it away.”
The margins are still increasing
In the first quarter, CrowdStrike’s adjusted subscription gross margin remained stable year over year at 80%, adjusted operating margin grew five percentage points to 22% and remained solidly profitable under generally accepted accounting principles (GAAP) for the fifth consecutive year. . quarter as it reined in its stock-based compensation costs.
These growing margins indicate that CrowdStrike still has sufficient pricing power and that economies of scale are emerging as it acquires more customers. It expects free cash flow (FCF) margin to rise from 31% in FY2024 to 31%-33% in FY2025.
On the bottom line, the company expects full-year adjusted earnings per share to rise 27% to 30%. That is also higher than the previous expectation of growth of 22% to 28%.
But can CrowdStrike maintain its premium rating?
CrowdStrike’s growth numbers are impressive, but the shares aren’t cheap. At $326 per share, it trades at 82 times the midpoint of expected earnings for fiscal 2025. Its $71 billion enterprise value is roughly 18 times this year’s estimated revenue.
By comparison, Palo Alto Networks — which is growing slower but has a more broadly diversified ecosystem — trades at 46 times forward earnings and 12 times this year’s revenue. In other words, CrowdStrike will have to continue hitting home runs in the coming quarters to push its stock even higher in this volatile market.
Where will CrowdStrike stock be a year from now?
CrowdStrike is clearly disrupting legacy cybersecurity companies with its cloud-native services, squeezing more revenue from its customers and increasing margins. I don’t think the stock will double again in the next twelve months, but I do think it should gradually climb higher as it continues to exceed Wall Street expectations. There should also be plenty of room in the long term as the cloud-native cybersecurity market grows.
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Leo Sun has positions in CrowdStrike and Palo Alto Networks. The Motley Fool holds and recommends positions in CrowdStrike and Palo Alto Networks. The Motley Fool has a disclosure policy.
Where Will CrowdStrike Stock Be in 1 Year? was originally published by The Motley Fool
