CrowdStrike May Beat Again, But Be Careful

seekingalpha11-22 21:30

I maintain a "Hold" rating for CrowdStrike Holdings due to its overvalued status despite strong operational performance and recovery from a significant outage.CrowdStrike's Q2 FY2025 financials ...

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The firm itself acknowledged that the 19 July disruption - a major outage stemming from a software upgrade - put CrowdStrike's business integrity and confidence in the company to the test. The apology from CEO George Kurtz and the manner in which the company handled the situation openly, such as expediting repairs and tightening quality controls, seemingly saved customers' trust. Despite the incident being at the end of the quarter and the high volume of sales closing during that time, CrowdStrike continued to show solid financials with revenues of over $963.8 million  and EBIT margin rising by 200 bps YoY, which is quite solid, in my view. To date, CrowdStrike generated an end-year ARR of $3.86 billion, up 32% year-over-year. The net new ARR for the quarter was $218 million, which is up 11% from the prior year and consistent with pre-incident expectations.   CRWD's IR ma","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4551":"寇图资本持仓","LU1064131342.USD":"Fullerton Lux Funds - Global Absolute Alpha A Acc USD","LU1548497426.USD":"安联环球人工智能AT Acc","LU1951198990.SGD":"Natixis Thematics AI & Robotics Fund H-R/A SGD-H","BK4097":"系统软件","LU1951200564.SGD":"Natixis Thematics AI & Robotics Fund R/A SGD","LU2125909593.SGD":"Natixis Thematics Meta R/A SGD","LU2286300806.USD":"Allianz Cyber Security AT Acc USD","BK4560":"网络安全概念","CRWD":"CrowdStrike Holdings, Inc.","IE00BZ9MQY76.HKD":"FTGF CLEARBRIDGE US AGGRESSIVE GROWTH \"A\" (HKD) ACC","LU1923623000.USD":"Natixis Thematics AI & Robotics Fund R/A USD","LU1720051108.HKD":"ALLIANZ GLOBAL ARTIFICIAL INTELLIGENCE \"AT\" (HKD) ACC","LU1974910355.USD":"Allianz Thematica Cl AMg DIS USD","LU2125909247.SGD":"Natixis Thematics Meta H-R/A SGD","LU1917777945.USD":"安联专题基金Cl AT Acc","IE00B894F039.SGD":"Legg Mason ClearBridge - US Aggressive Growth A Acc SGD-H","LU2433249047.HKD":"THEMATICS META \"R/A\" (HKD) ACC","BK4598":"佩洛西持仓","LU2357305700.SGD":"Allianz Global Artificial Intelligence ET H2-SGD","LU1923622614.USD":"Natixis Thematics Meta R/A USD","BK4528":"SaaS概念","LU1988902786.USD":"FULLERTON LUX FUNDS GLOBAL ABSOLUTE ALPHA \"I\" (USD) ACC","BK4532":"文艺复兴科技持仓","LU2106854487.HKD":"ALLIANZ THEMATICA \"AMG\" (HKD) INC","LU2125909759.SGD":"Natixis Thematics Safety H-R/A SGD","LU2125909916.SGD":"Natixis Thematics Safety R/A SGD","LU2211815571.USD":"ALLIANZ POSITIVE CHANGE \"AT\" (USD) ACC","LU1992135399.USD":"Allianz Global Intelligent Cities AT Acc USD","BK4585":"ETF&股票定投概念","LU2272731782.SGD":"Allianz Global Intelligent Cities AM Dis H2-SGD","LU2023250504.SGD":"Allianz Thematica Cl AMg DIS H2-SGD","LU1923622291.USD":"Natixis Thematics Safety R/A USD","LU2272731600.USD":"Allianz Global Intelligent Cities AM Dis USD","IE00B19Z9P08.USD":"LEGG MASON CLEARBRIDGE US AGGRESSIVE GROWTH \"A\" (USD) INC","LU2264538146.SGD":"Fullerton Lux Funds - Global Absolute Alpha A Acc SGD","LU1992135472.HKD":"ALLIANZ GLOBAL INTELLIGENT CITIES \"AT\" (HKD) ACC","IE00B19Z9Z06.USD":"Legg Mason ClearBridge - US Aggressive Growth A Acc USD","BK4588":"碎股","LU1720051017.SGD":"Allianz Global Artificial Intelligence AT Acc H2-SGD"},"translate_title":"CrowdStrike可能会再次获胜，但要小心","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CRWD":0.9},"content_text":"I maintain a \"Hold\" rating for CrowdStrike Holdings due to its overvalued status despite strong operational performance and recovery from a significant outage.CrowdStrike's Q2 FY2025 financials exceeded expectations, with $963.8 million in revenue and $1.04 adjusted EPS, but short-term headwinds persist.Management's positive outlook for Q4 and FY2026 may drive earnings revisions higher, yet the stock's already high P/E and PEG ratios suggest overvaluation compared to peers.While I expect CRWD to beat Q3 estimates and provide positive guidance, the current stock price may already reflect this potential upside.Any deviation from my positive assumption could send CRWD stock price sharply lower, so I'm neutral on CRWD before its Q3 FY2025 print in a few days.   Sundry Photography  CrowdStrike Overview In about two weeks after the software outage at CrowdStrike Holdings (NASDAQ:CRWD), when the stock of one of the world's largest cybersecurity companies managed to fall by >35% and settled below the 200-day moving average, I initiated my coverage with a \"Hold\" rating assuming that CRWD might keep falling driven by potential downward revisions to its EPS Wall Street estimates. Happily for those buying CRWD at those depressed price levels, my assumption didn't play out as I had expected, and the stock started to recover rapidly, outperforming the S&P 500 index (SPX) (SPY) by a factor of over 6:   Seeking Alpha, my coverage of CRWD stock CrowdStrike is set to release its earnings for its Q3 FY2025 on November 26, 2024 (post-market). Based on what I see, I think \"Hold\" is the most appropriate rating for CRWD right now, as the company is doing much better operationally than I anticipated back in August. However, the stock price has overreacted and become too expensive, in my opinion, even considering the potential future growth of the business. How CrowdStrike Performed In Q2? First off, let's examine the Q2 FY2025 results and recent developments to get a clearer picture of CRWD's business. The firm itself acknowledged that the 19 July disruption - a major outage stemming from a software upgrade - put CrowdStrike's business integrity and confidence in the company to the test. The apology from CEO George Kurtz and the manner in which the company handled the situation openly, such as expediting repairs and tightening quality controls, seemingly saved customers' trust. Despite the incident being at the end of the quarter and the high volume of sales closing during that time, CrowdStrike continued to show solid financials with revenues of over $963.8 million (+34% YoY and $5.5 more than expected) and EBIT margin rising by 200 bps YoY, which is quite solid, in my view. To date, CrowdStrike generated an end-year ARR of $3.86 billion, up 32% year-over-year. The net new ARR for the quarter was $218 million, which is up 11% from the prior year and consistent with pre-incident expectations.   CRWD's IR materials The company also made GAAP profits for the sixth consecutive quarter and delivered $272 million in free cash flow (28.9% of revenue). So CRWD managed to beat the consensus expectations for Q2 not only regarding the top line but also on the bottom line ($1.04 of actual adjusted EPS vs. $0.97 expected). Despite the double beat, Q2 numbers and earnings commentary led to a massive negative reaction from Wall Street analysts regarding Q3:   Seeking Alpha, CRWD Why so? I believe the July 19 incident led to delays in deal closures, so the short-term financials will likely take the main hit from that. The immediate actions taken by the company, such as new automated recovery methods and content control settings, aim to mitigate these risks. In addition, as the management said on the earnings call, CrowdStrike's relationship with third-party software security providers for external inspection and validation of its Falcon sensor code and testing processes is one step in building a more secure platform in the future. As of note, the core of CRWD's business is its 28-module Falcon platform that provides a broad array of cybersecurity services, from cloud security to identity and next-generation Security Information and Event Management (SIEM). The Falcon platform's breadth and depth are reflected in the large growth in its LogScale next-gen SIEM, identity protection, and cloud security divisions, which combined delivered more than $1 billion in ending ARR, rising by more than 85% year over year. This multi-year revenue diversification is a strength that allows CrowdStrike to explore multiple growth channels, Argust Research analysts wrote in their report in late September (proprietary source).  What To Expect From CRWD's Q3 Results Despite the short-term headwind, the management seems to be quite confident about the future. They forecast overall revenues for Q3 FY2025 between $979.2-984.7 million, up 25% over the prior year. Revenues for the full fiscal year 2025 range from $3.89-3.902 billion, with non-GAAP net income expected between $908.8-918.0 million. Though the customer commitment program (through discounts and longer subscriptions) has a short-term effect, CrowdStrike predicts that these initiatives will ultimately drive platform and module adoption. I think that overall CRWD now has a much better chance of beating analysts' forecasts since those forecasts have been reduced quite significantly:   Seeking Alpha, CRWD, the author's notes Also, as you can see, the downward revisions touched not just the Q3 FY2025 figure - it's a widespread reaction to all the next quarters. So assuming that the negative reaction from clients was actually minimal and that my initial fear was unjustified, I think CRWD may beat Q3 and also give positive guidance for Q4 and beyond, which may provoke the opposite move in revisions. That would be a great bullish catalyst for the stock in the short term at least. CRWD Stock Valuation But what stops me from assigning a \"Buy\" rating today is CRWD's valuation. Let's assume that the management indeed gives a brighter-than-expected outlook for the business developments in Q4 and FY2026. In this case, today's consensus should look too conservative - we wouldn't be too off assuming a return to the assumptions before the July 19 event. So instead of today's FY2026 and FY2027 EPS figures, we would have $4.84 and roughly $6.3, respectively. So the implied P/E for the next year and calendar 2026 would come to 73.9x and 56.7x, respectively - that's way more than the peers' multiples (below is an example for calendar 2026):   YCharts, the author's notes added Yes, CRWD should have a higher growth rate than its peers according to Seeking Alpha, but I think its multiples are already at a very high premium - even the PEG ratio, which weights P/E to EPS growth, should be consistently above 1x and even 2x for several years, assuming the current share price remains unchanged.   Seeking Alpha Premium, CRWD, notes added So, even if we apply a premium to the current growth rates, I don't think we'll see a dramatic change in the above \"overvaluation picture\". Morningstar Premium's fair value model (proprietary source, November 2024) agrees with my valuation take on CWRD, showing a downside to the stock's fair value of above 16%:   Morningstar Premium's fair value model (proprietary source) So I think a \"Hold\" is the most appropriate rating for CRWD before its Q3 FY2025 print in a few days. The Bottom Line CrowdStrike's healthy earnings, multiple revenue streams, and active efforts to build platform stability should set it up for the long haul. Although the July 19 incident proved to be challenging, CrowdStrike's open approach and ongoing efforts to bolster customer confidence and platform abilities should assure future success. On the other hand, even if management gives better guidance for Q4 and FY2026, suggesting that Wall Street's estimates would return to pre-July 19 event levels, the expected EPS of FY2026 and FY2027 would come at significant price-to-earnings multiples of 73.9x and 56.7x respectively. These are vastly higher than its peers, although CRWD's growth rate in EPS would be faster. The stock's overvalued status is further illustrated by the PEG ratio, which consistently crosses above 1x and even 2x for years to come. In a nutshell, I expect CRWD's Q3 FY2025 to beat consensus estimates, and management will likely provide positive guidance for Q4, but there is a risk that all the upside may already be priced in. Any deviation from my positive assumption could send CRWD's stock price sharply lower.  Thank you for reading!","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2485842265"}