CrowdStrike (CRWD)

Cybersecurity company CrowdStrike (NASDAQ:CRWD) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 19.8% year on year to $1.10 billion. On the other hand, next quarter’s revenue guidance of $1.15 billion was less impressive, coming in 1% below analysts’ estimates. Its non-GAAP profit of $0.73 per share was 10.6% above analysts’ consensus estimates.

Company Overview

Founded by George Kurtz, the former CTO of the antivirus company McAfee, CrowdStrike (NASDAQ:CRWD) provides cybersecurity software that protects companies from breaches and helps them detect and respond to cyber attacks.

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.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, CrowdStrike grew its sales at an exceptional 36.2% compounded annual growth rate. Its growth surpassed the average software company and shows its offerings resonate with customers, a great starting point for our analysis.

This quarter, CrowdStrike’s year-on-year revenue growth was 19.8%, and its $1.10 billion of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 19.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 21.6% over the next 12 months, a deceleration versus the last three years. Despite the slowdown, this projection is noteworthy and suggests 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 $4.4 billion in Q1, and over the last four quarters, its growth was impressive as it averaged 25.9% 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 represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

CrowdStrike is quite efficient at acquiring new customers, and its CAC payback period checked in at 33.2 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a strong brand reputation, giving it more resources 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 good for a software business and points to its solid unit economics, competitive products and services, and lack of meaningful pricing pressure. As you can see below, it averaged an impressive 74.5% gross margin over the last year. That means for every $100 in revenue, roughly $74.48 was left to spend on selling, marketing, and R&D.

In Q1, CrowdStrike produced a 73.8% gross profit margin, down 1.8 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.

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.

CrowdStrike’s expensive cost structure has contributed to an average operating margin of negative 6.1% over the last year. 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 6.8 percentage points over the last year. 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.

In Q1, CrowdStrike generated a negative 11.3% operating margin.

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 attractive business model and cost-effective customer acquisition strategy that enable it to invest in new products and services rather than sales and marketing. The company’s free cash flow margin averaged 24.7% over the last year, quite impressive for a software business. 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 $279.4 million in Q1, equivalent to a 25.3% margin. The company’s cash profitability regressed as it was 9.7 percentage points lower than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.

Over the next year, analysts predict CrowdStrike’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 24.7% for the last 12 months will increase to 27.5%, giving it more flexibility for investments, share buybacks, and dividends.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

CrowdStrike is a well-capitalized company with $4.61 billion of cash and $785.4 million of debt on its balance sheet. This $3.83 billion net cash position is 3.1% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was great to see CrowdStrike beat convincingly on operating profit this quarter. Looking ahead, guidance was solid. The company’s EPS guidance for next quarter topped analysts’ expectations, and its full-year EPS guidance slightly exceeded Wall Street’s estimates as well. On the other hand, its revenue guidance for next quarter slightly missed and its full-year revenue guidance was just in line with Wall Street’s estimates. Overall, this was a mixed quarter and not enough for the high expectations around the stock (as evidenced by the 52-week high right before reporting and a 40+% stock price appreciation year-to-date before the print). The stock traded down 6.2% to $458.72 immediately following the results.

Updated: July 10, 2025 at 10:01 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in CrowdStrike.

CrowdStrike possesses a number of positive attributes. To kick things off, its revenue growth was exceptional over the last three years. And while its declining operating margin shows it’s becoming less efficient at building and selling its software, its ARR has surged, showing its fundamentals are improving because it’s becoming a more predictable business. On top of that, its bountiful generation of free cash flow empowers it to invest in growth initiatives.

CrowdStrike’s price-to-sales ratio based on the next 12 months is 24.1x. This valuation tells us that a lot of optimism is priced in. Add this one to your watchlist and come back to it later.

Wall Street analysts have a consensus one-year price target of $479.74 on the company (compared to the current share price of $491.50).