What happened
Shares of CrowdStrike Holdings (NASDAQ: CRWD) plunged 26.7% in November, according to data provided by S&P Global Market Intelligence. Weighing on the cybersecurity company's stock price was its fiscal third-quarter results. While it posted strong numbers overall, slowing growth spooked investors.
So what
CrowdStrike reported its fiscal third-quarter results right at the end of November. At first look, they seemed outstanding. Revenue soared 53% to $580.9 million, while its annual recurring revenue (AAR) leaped 54% to $2.34 billion. Meanwhile, the company's non-GAAP (adjusted) income from operations jumped from $50.7 million to $89.7 million. The company also grew its free cash flow from $123.5 million to $174.1 million.
However, while the cybersecurity company added $198.1 million of net new ARR in the period, that was below expectations due to increasing macroeconomic uncertainty. Companies delayed purchasing decisions or signed contracts with multiphase start dates. CrowdStrike CEO George Kurtz warned during the conference call, "We expect these macro headwinds to persist through Q4." As a result, management sees its net new ARR at least 10% below the third-quarter number.
This news led analysts to slash their price targets on CrowdStrike stock. For example, Jefferies analyst Joseph Gallo lowered his price target from $220 to $175 while maintaining a buy rating on the stock. The analyst noted that the company's fiscal 2024 guidance was 7% below the consensus estimate.
Meanwhile, Stifel analyst Brad Reback downgraded CrowdStrike to hold while slashing his price target from $225 to $120 a share. He noted that the company reported a "disappointing quarter" with its first-ever miss on its annual ARR forecast.
While many analysts cut their ratings and price target on CrowdStrike, some saw the subsequent sell-off as a buying opportunity. Even though Morgan Stanley analyst Hamza Fodderwala lowered the investment bank's price target from $190 to $172 a share, the analyst maintained the stock's overweight rating. Further, Fodderwala wrote that while the report was "definitely worse than expected," investors should buy shares amid the weakness, as CrowdStrike is a growing consolidator that should deliver stronger share gains than its peers.
Now what
CrowdStrike hit a speed bump due to macroeconomic uncertainty. That headwind will continue to slow its growth for at least the next quarter. However, Kurtz proclaimed on the call that "it is our belief that we are still in the early innings of CrowdStrike's growth journey." Further, the CEO stated, "We remain steadfast in our vision to grow ending ARR to $5 billion by the end of fiscal year 2026 and reach our target operating model in fiscal year 2025." Because of that, the sell-off could be a great buying opportunity for long-term investors.
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Matthew DiLallo has positions in CrowdStrike. The Motley Fool has positions in and recommends CrowdStrike and Jefferies Financial Group. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
