Why CrowdStrike (CRWD) Stock Is Trading Up Today

Kayode Omotosho /
2023/08/31 10:44 am EDT

What Happened:

Shares of cybersecurity company CrowdStrike (NASDAQ:CRWD) jumped 5.19% in the morning session after the company reported second quarter results with revenue slightly ahead of expectations, while non-GAAP operating profit beat more handily. Management now plans to hit 20-22% non-GAAP operating margin roughly one year sooner than expected, which is a welcome sign for long-term profits and cash flow generation. Guidance for the next quarter was in line for revenue but above for non-GAAP operating profit. Full year guidance was raised, with management noting that a strong pipeline, increasing sales capacity, and partnerships like the one with Dell are driving the increased confidence for the year. 

Some minor negatives included ARR (annual recurring revenue, a leading indicator of revenue) that was just in line. Overall, it was a good quarter for the company and likely better than feared, especially on the margin front.

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What is the market telling us:

CrowdStrike's shares are quite volatile and over the last year have had 21 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 three 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 58.6% since the beginning of the year, but at $163.80 per share it is still trading 16% below its 52-week high of $195.10 from September 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 $2,820.

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