Shares of cybersecurity company CrowdStrike (NASDAQ:CRWD) fell 5.1% in the afternoon session after stocks across major indices fell as the market assessed the potential of higher rates for longer, fearing that tighter monetary policy could tip the economy into a recession. This has pushed Treasury yields to levels not seen in more than a decade. Specifically, The 10-year Treasury yield last traded at nearly 4.8%, reaching its highest level since 2007. Higher rates have a negative impact on equity valuations, as today's stock price is the present value of future cash flows discounted at a discount rate. The higher the prevailing interest rate environment, the higher that discount rate. In addition, higher rates particularly hurt higher-growth stocks such as tech names since investors must discount financials further out in the future back to the present.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy CrowdStrike? Access our full analysis report here, it's free.
What is the market telling us:
CrowdStrike's shares are quite volatile and over the last year have had 19 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was four months ago, when the stock dropped 13.1% on the news that the company reported first-quarter results that exceeded analysts' expectations for revenue, annual recurring revenue (ARR), free cash flow, and earnings per share. Gross margin also improved. However, there was a notable setback in terms of billings, which serves as a crucial leading indicator for near-term sales growth. Billings fell 12% below expectations.
Management provided more color on the billings outlook during the earnings call, noting that "given the timing of expenses, billing seasonality, and the midyear ESPP purchase, the second quarter is generally our lowest cash flow generation quarter of the year. This year we expect to see more pronounced seasonality." Additionally, CFO Burt Podbere pointed out that the company continued to observe "increased deal scrutiny and longer than typical sales cycles." Despite these, guidance was impressive. Revenue, operating income and earnings per share guidance for the next quarter and full year were ahead of Consensus, and the company raised the full year revenue and earnings per share outlook. CrowdStrike also Introduced Charlotte AI, a new generative AI security analyst.
Overall, it was a strong quarter, although a billings miss is never a good sign for a fast-growing SaaS company. Additionally, the markets were either expecting more (there is whisper that net new ARR, which was down year on year, was expected to be better), or the results were already priced in.
CrowdStrike is up 56.3% since the beginning of the year, but at $161.47 per share it is still trading 9.48% below its 52-week high of $178.39 from October 2022. Investors who bought $1,000 worth of CrowdStrike's shares at the IPO in June 2019 would now be looking at an investment worth $2,780.
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