• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

CrowdStrike Gets CrowdStruck, But I Have a Long-Term Investment Plan

The cybersecurity provider's latest results don't look bad at all.
By STEPHEN GUILFOYLE
Nov 30, 2022 | 10:30 AM EST
Stocks quotes in this article: CRWD, PANW, ZS

Cloud-based cybersecurity provider CrowdStrike Holdings (CRWD) reported the firm's third quarter financial results on Tuesday evening. The stock was taken out to the woodshed overnight, trading down almost 18% as I set about covering and opining on those results.

The short of it is that I do not see anything really that awful in this report. That said, we knew that valuation was and is an issue for the entire cybersecurity software space coming in.

For the three month period ended October 31st, CrowdStrike posted adjusted EPS of $0.40 (GAAP EPS: $-0.24) on revenue of $580.882M. The firm beat Wall Street on both the top line and adjusted bottom line. Those results were up from $0.17 and $380.051M (+52.8%) a year ago.

The GAAP print was down from a comp of a loss of $0.22 for Q3 2021. The primary adjustment made ($0.59) was for stock-based compensation. Stock based compensation expense came to $140.113M. which is 24% of total revenue. This is unsustainable going forward. The pace of the firm's sales growth as well as better control over payroll should help here.

ARR (Annual Recurring Revenue) grew 54% to $2.34B, of which $198.1M was new this quarter. Adjusted subscription gross margin landed at 78%, below the 79% year ago comp. Net new subscription customers increased 44% to 21,146. Subscription customers having adopted five+, six+, and seven+ modules now respectively stand at 60%, 36%, and 21%. Free cash flow increased 41% to $174.077M as free cash flow margin dropped from 32% to 30%.

Business Performance

- Subscription drove revenue of $547.376M (+53.3%), as the cost of this revenue increased 57.6% to $134.229M. This placed gross profit at $413.147M (+52.1%).

- Professional Services drove revenue of $33.506M (+45.6%), as the cost of this revenue increased 48.1% to $23.999M. This placed gross profit at $9.507M (+39.4%).

Cautious

CEO George Kurtz commented in the press release: "Total ARR was below our expectations as increased macroeconomic headwinds elongated sales cycles with smaller customers and caused some larger customers to pursue multiphase subscription start dates, which delayed ARR recognition until future quarters."

Kurtz explained further in the earnings call: "As Q3 progressed and fears of a recession grew, this dynamic became more pronounced. In our smaller, more transactional accounts, we saw customers increasingly delay purchasing decisions with average day to close lengthening by approximately 11% and net new ARR contribution decreasing $15M from Q2."

Kurtz goes on to explain that the firm's "win-rate" improved meaningfully, so as sales cycles lengthen, he believes that these deals are not lost. Kurtz expects these conditions to persist into the current quarter.

Guidance

- For the current quarter: The firm sees revenue at $619.1M to $628.2M. Consensus had been for about $633M. Adjusted income from operations is seen at $87.2M to $93.7M. Adjusted EPS is expected to print in between $0.42 and $0.45 on adjusted net income of $100.9M to $107.5M. Wall Street was looking for adjusted EPS down around $0.34.

- For the full year: The firm sees revenue at $2.223B to $2.232B. Consensus had been for about $2.23B. This is up from prior guidance of $2.190.5B to $2.205.8B. Adjusted income from operations is seen at $347.2M to $353.8M. Adjusted EPS is expected to print in between $1.49 and $1.52 on adjusted net income of $357.6M to $364.4M. This is up from prior guidance of $1.31 to $1.33. Wall Street had been looking for $1.34.

Balance Sheet

CrowdStrike ended the quarter with a net cash position of $2.467B and current assets of $3.204B. Both of these entries are up significantly from the start of the year. Current liabilities amount to $1.817B, $1.483B which is made up of deferred revenue. The firm stands at quarter's end with a healthy enough current ratio of 1.36.

Total assets add up to $4.469B, including $517.785M worth of "goodwill" and other intangibles. At 11.6% of total assets, I see no problem here. Total liabilities less equity comes to $3.132B. This includes $740.6M in long-term debt and another $532.3M worth of deferred revenue labeled as non-current. CrowdStrke could pay off its debt-load more than three times over, out of pocket. This is a very strong balance sheet.

Wall Street

I have found 13 sell-side analysts rated at four stars or better at TipRanks who have also opined on CRWD since this earnings release. There are a bevy of cuts to price targets and one notable downgrade. Among the 13, there are 12 "buy" or buy-equivalent ratings, and one "hold" rating. One of the "buys" chose not to set a target price. The average target price across the other 12 is $161.92 with a high of $180 (Shaul Eyal of Cowen & Co) and a low of $120 (Brad Reback of Stifel Nicolaus). Once omitting the high and low targets as outliers, the average target price rises to $164.30.

My Thoughts

I don't think the third quarter, upon completion, looks bad at all. The fourth quarter revenue guide and the CEO's honest take during the conference call were enough to rattle shareholders in a name that came in trading at more than 100 times forward looking earnings. Investors who have not, really should read the transcript of the call. I tried to excerpt Kurtz's comments here for the purposes of writing an article short enough to be read. He goes into greater detail at some length during the call.

I respect the candid take, by the way. It should not be missed that the firm raised full year guidance for both revenue and profitability and reiterated the firm's vision to reach its target operating model during fiscal 2025 (CY 2024) and grow ending ARR to $5B by the end of FY 2026 (CY 2025).

Know what I think. I think CRWD is tradeable. More than that, starting at these levels, with a significantly reduced valuation, I think CRWD is becoming investable... especially with a forward looking earnings multiple more comparable to what we see at Palo Alto Networks (PANW) , and less comparable to valuation that Zscaler (ZS) traded at.

The stock remains in a downtrend and will test the lower line of descending support today. My thoughts? A small entry around $110. Followed by incremental purchases down to around $105. Then take a look. Zscaler reports on Thursday evening, so baby steps here.

I am looking at this as the start of a potentially long-term investment. I am not yet long the equity, as I took the time to write this piece first. I expect to be long before the day is out.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Stephen Guilfoyle was Long PANW equity. Short CRWD calls. Long CRWD calls.

TAGS: Earnings | Investing | Stocks | Technical Analysis | Trading | Cybersecurity

More from Stocks

Fast Food Might Offer Investors a Quick Buck

Bob Lang
Feb 7, 2023 5:15 PM EST

Let's see how these restaurants may be settling into a profit sweet-spot amid inflation's ups and downs.

Giddy Market Gets Powell Happy

James "Rev Shark" DePorre
Feb 7, 2023 4:33 PM EST

The euphoric reaction to the Fed among investors makes little sense -- but adds to the market volatility.

When It Comes to Politics and ETFs, If You Can't Beat 'Em, Join 'Em

Mark Abssy
Feb 7, 2023 2:17 PM EST

Surprise! Lawmakers, no matter the party, are not exempt from insider-trading laws, just like the rest of us. But we can all invest in these two new exchange-traded funds.

Is FMC Corp Facing a Downward Correction?

Bruce Kamich
Feb 7, 2023 12:55 PM EST

Let's see what the charts look like.

It's Decision Time for Bulls and the Market

James "Rev Shark" DePorre
Feb 7, 2023 11:45 AM EST

The market is at a very important juncture.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:22 AM EST REAL MONEY

    LIVE EVENT: Bruce Kamich and Todd Campbell Share Their Stock Market Insights

    This Monday, Feb. 6 at 12 p.m., our very own exper...
  • 02:58 PM EST REAL MONEY

    Sarge Guilfoyle Breaks Down the Jobs Report, Fed Policy and Stocks!

    Watch it here!
  • 11:35 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Trading an Irrational Market
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login