CrowdStrike (CRWD)

Cybersecurity platform provider CrowdStrike (NASDAQ:CRWD) reported Q4 CY2025 results topping the market’s revenue expectations, with sales up 23.3% year on year to $1.31 billion. Guidance for next quarter’s revenue was better than expected at $1.36 billion at the midpoint, 0.6% above analysts’ estimates. Its non-GAAP profit of $1.12 per share was 1.6% above analysts’ consensus estimates.

Company Overview

Known for detecting the massive SolarWinds hack in 2020 that compromised numerous government agencies, CrowdStrike (NASDAQ:CRWD) provides cloud-based cybersecurity solutions that protect endpoints, cloud workloads, identity, and data through its Falcon platform.

Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks. As the volume of internet enabled devices grows, every device that employees use to connect to business networks represents a potential risk. Endpoint security software enables businesses to protect devices (endpoints) that employees use for work purposes either on a network or in the cloud from cyber threats.

CrowdStrike competes with traditional endpoint security providers like Microsoft (NASDAQ:MSFT) with its Defender product, Palo Alto Networks (NASDAQ:PANW), SentinelOne (NYSE:S), and VMware's Carbon Black (now part of Broadcom, NASDAQ:AVGO). In the cloud security space, it faces competition from Wiz, Zscaler (NASDAQ:ZS), and Cisco (NASDAQ:CSCO).

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, CrowdStrike’s 40.6% annualized revenue growth over the last five years was incredible. Its growth surpassed the average software company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within software, a half-decade historical view may miss new innovations or demand cycles. CrowdStrike’s annualized revenue growth of 25.5% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, CrowdStrike reported robust year-on-year revenue growth of 23.3%, and its $1.31 billion of revenue topped Wall Street estimates by 0.6%. Company management is currently guiding for a 23.4% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 21.7% over the next 12 months, a deceleration versus the last two years. Still, this projection is healthy and implies the market sees success for its products and services.

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

CrowdStrike’s ARR punched in at $5.25 billion in Q4, and over the last four quarters, its growth was impressive as it averaged 22.1% year-on-year increases. This performance aligned with its total sales growth and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes CrowdStrike a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

CrowdStrike is very efficient at acquiring new customers, and its CAC payback period checked in at 29 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give CrowdStrike more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

Software is eating the world. It’s one of our favorite business models because once you develop the product, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.

CrowdStrike’s gross margin is better than the broader software industry and signals it has solid unit economics and competitive products. As you can see below, it averaged a decent 74.7% gross margin over the last year. That means for every $100 in revenue, roughly $74.73 was left to spend on selling, marketing, and R&D.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. CrowdStrike has seen gross margins decline by 0.5 percentage points over the last 2 year, which is slightly worse than average for software.

CrowdStrike produced a 75.8% gross profit margin in Q4, up 1.7 percentage points year on year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

Although CrowdStrike broke even this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 6.5% over the last year. Unprofitable, high-growth software companies require extra attention because they spend heaps of money to capture market share. This happened because the company spent loads of money to capture market share. As seen in its fast revenue growth, the aggressive strategy has paid off so far, and Wall Street’s estimates suggest the party will continue. We tend to agree and believe the business has a good chance of reaching profitability upon scale.

Analyzing the trend in its profitability, CrowdStrike’s operating margin decreased by 3.5 percentage points over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. CrowdStrike’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

CrowdStrike’s operating margin was negative 0.5% this quarter.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

CrowdStrike has shown robust cash profitability, driven by its cost-effective customer acquisition strategy that enables it to invest in new products and services rather than sales and marketing. The company’s free cash flow margin averaged 25.7% over the last year, quite impressive for a software business. CrowdStrike has shown robust cash profitability relative to peers over the last year, giving the company fewer opportunities to return capital to shareholders. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

CrowdStrike’s free cash flow clocked in at $376.4 million in Q4, equivalent to a 28.8% margin. This result was good as its margin was 6.2 percentage points higher than in the same quarter last year. Its cash profitability was also above its one-year level, and we hope the company can build on this trend.

Over the next year, analysts predict CrowdStrike’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 25.7% for the last 12 months will increase to 29.6%, it options for capital deployment (investments, share buybacks, etc.).

It was good to see CrowdStrike expecting revenue growth to continue next year. We were also happy its annual recurring revenue narrowly outperformed Wall Street’s estimates. Zooming out, we think this was a decent quarter. The stock remained flat at $393.06 immediately following the results.

Updated: March 3, 2026 at 4:20 PM EST

Before investing in or passing on CrowdStrike, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

There are multiple reasons why we think CrowdStrike is an amazing business. For starters, its revenue growth was exceptional over the last five years. And while its declining operating margin shows it’s becoming less efficient at building and selling its software, its splendid ARR growth shows it’s securing more long-term contracts and becoming a more predictable business. On top of that, CrowdStrike’s efficient sales strategy allows it to target and onboard new users at scale.

CrowdStrike’s price-to-sales ratio based on the next 12 months is 17.3x. This valuation may appear high at first glance, but the multiple is deserved because CrowdStrike’s fundamentals really stand out. We think the stock is attractive here.

Wall Street analysts have a consensus one-year price target of $518.92 on the company (compared to the current share price of $393.06), implying they see 32.1% upside in buying CrowdStrike in the short term.