The stock of CrowdStrike (NASDAQ: CRWD) experienced a decline following the company’s announcement of weaker profitability projections for fiscal year 2026, coupled with a slowdown in spending from its existing customers. As of the latest update, shares of this cybersecurity firm have only risen by less than 6% in the past year. Earlier, the company faced a significant setback due to a widely publicized outage, but managed to recover until the recent downturn.
A key question arises: is it a good time to invest in CrowdStrike amidst this dip? Let’s delve into the company’s latest performance and outlook to determine if this could be a favorable opportunity to purchase their stock.
Slowing revenue growth remains a concern for CrowdStrike. Although the gross customer retention rate remained steady at 97%, the net dollar retention growth rate continued to decelerate, standing at 112% over the previous 12 months. This metric measures the increase in spending by existing customers over a year, excluding any losses. While a figure over 100% is positive, showcasing increased spending, the current rate is lower than the 119% reported a year ago and 115% in the prior quarter.
To address the impact of the outage, CrowdStrike provided customer commitment packages (CCPs) in 2024, mostly in the form of additional modules and Falcon Flex subscriptions. Falcon Flex, a flexible licensing arrangement, allows customers to utilize modules as needed to access the full range of services. The CCPs also served as a marketing tool for Falcon Flex, contributing to a significant increase in total account Flex deal value to $2.5 billion, up 80% sequentially and 10 times higher compared to the previous year. The company plans to end the CCP program, anticipating revenue growth in the latter half as discounts phase out and contracts are renewed.
In the latest financials, CrowdStrike reported a 25% revenue increase to $1.06 billion, slightly surpassing the analyst consensus of $1.03 billion. Subscription revenue surged by 27% to $1.01 billion, with promising growth exhibited by the Cloud Security, Identity Protection, and Next-Gen SIEM modules. Additionally, the company noted positive traction for its new AI security analyst, Charlotte.
Annual recurring revenue (ARR) expanded by 23% to reach $4.24 billion, with a quarterly addition of $224.3 million in new ARR. While ARR growth has slowed, it has been influenced by the CCPs utilization. The adjusted earnings per share (EPS) rose by 8% to $1.03, exceeding the company’s previous forecast range of $0.84 to $0.86.
CrowdStrike sustained strong cash generation, with operating cash flow of $345.7 million for the quarter and $1.38 billion for the year. Free cash flow amounted to $239.8 million for the quarter and $1.
The company reported an adjusted EPS of $4.42 with revenue reaching $4.77 billion. The noticeable variance between forecasted EPS and estimates is attributed to upfront investment costs. For the fiscal first quarter, the company anticipates an adjusted EPS ranging from $0.64 to $0.66, alongside revenue of $1.1 billion to $1.11 billion. This EPS projection falls short of the consensus estimate of $0.95. A laptop screen displaying a padlock is shown in the image sourced from Getty Images.
Considering an investment in CrowdStrike, the key factor to evaluate is its revenue growth. The stock is trading at a relatively high forward price-to-sales (P/S) multiple, close to 19 times the analyst estimates for fiscal 2026. However, the company has experienced a significant slowdown in both its Annual Recurring Revenue (ARR) and net dollar-based retention. The projected 20% growth for fiscal 2026 does not align with the current valuation. Investors seeking to support the stock at its current levels must anticipate a resurgence in revenue in the latter part of the year as customer commitment packages expire. While this scenario is plausible, there isn’t much room for error given the company’s current valuation.
While acknowledging CrowdStrike as a promising company with long-term prospects, the stock still seems overvalued post the recent pullback. Hence, it might be advisable to observe from the sidelines for now.
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*Stock Advisor returns as of March 3, 2025.
Geoffrey Seiler does not hold positions in any of the mentioned stocks. The Motley Fool endorses and recommends CrowdStrike, abiding by a disclosure policy.
