Earnings

CrowdStrike (CRWD) Q3 Earnings: What to Expect

Crowdstrike logo on their building
Credit: Sundry Photography - stock.adobe.com

With the recent concern about omicron, the new, heavily-mutated variant of Covid-19, software stocks have been relative outperformers despite the recent market pullback. Among the biggest gainers have been cybersecurity specialists such as stay-at-home beneficiary CrowdStrike (CRWD), which has become popular amid the recent surge in cyberattacks.

Prior to the omicron news, CrowdStrike shares had fallen almost 20% over the past month, trailing the 3.5% rise in the S&P 500 index. The stock began experiencing selling pressure on Monday, losing more than 10% after Morgan Stanley analyst Hamza Fodderwala initiated coverage of the stock with an Underweight rating which is the equivalent of sell. While Fodderwala acknowledged the company’s growth from the shift toward digitalization and remote work over the past two years, while gaining a leadership position in endpoint detection and response security, competition will chip away at CrowdStrike’s early success.

Fodderwala expects rivals to undercut CrowdStrike's prices by at least 15% to 20%, noting that this competitive headwind, along with a reduction in work from home, will impeded CrowdStrike's current pace of share gains. But the company’s ability to execute have never come into question. Aside from a surge in new customer acquisitions, CrowdStrike continues to find ways to get its existing customers to add more features and functionality.

What’s more, the massive enterprise shift to work-from-anywhere will continue to drive cybersecurity as one of the hottest sectors in tech in the next few years. This has become even more magnified as corporations scramble to combat not only rising hacker sophistication, but also implement defenses needed to support their digital expansion. The question is, can CrowdStrike maintain its best-of-breed status? In other words, CrowdStrike has a lot to prove Wednesday and its guidance for the next two quarters will determine how the stock responds.

For the three months that ended October, Wall Street expects the Sunnyvale, Calif.-based company to earn 10 cents per share on revenue of $363.53 million. This compares to the year-ago quarter when earnings were 8 cents per share on revenue of $232.46 million. For the full year, ending January, earnings are expected to be 47 cents per share, up from 27 cents per share, while full-year revenue is expected to rise 61% year over year to $1.41 billion.

Amid the pandemic, there has been increased demand for better security as companies rushed to deploy tools such as virtual private networks that allow employees to connect to the office remotely, including services such as CrowdStrike’s cloud-based security protection. However, CrowdStrike must now dispel concern about what has been described as a massive pull-forward in demand. For example, while the projected full-year revenue growth of 61% is in of itself impressive, it is a noticeable deceleration from 2020 growth levels of 80%.

In the first quarter the company crushed revenue and profit estimates, delivering 70% year-over-year surge in revenue to $337.69 million, beating estimates by more than $14 million, while adjusted EPS of 11 cents surpasses expectations by 2 cents. Its subscription revenue accounted for $184.3 million, a 71% growth for the segment. The company added $151 million in net new annual recurring revenue (ARR), while growing ending ARR 70% year over year, topping $1.34 billion.

Just as impressive, during the quarter CrowdStrike added 1,660 net new subscription customers, reaching a total of 13,080, up 81% on the year. For the stock to keep rising, the market will want to see CrowdStrike repeat this performance.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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