CrowdStrike Stock Drops After In-Line Q1 Report Tests Lofty Valuation

CrowdStrike (CRWD) reported its fiscal Q1 2026 results Tuesday after the close, delivering a mixed performance that disappointed some investors and sent the stock tumbling over 6% in after-hours trading. Shares had surged to all-time highs ahead of the release, driven by optimism around enterprise demand, AI tailwinds, and strong platform momentum. But with the stock trading at a rich 106x forward earnings and a 30x price-to-sales ratio, the market had little patience for an "in-line" report. CRWD fell from $494 to the $450 area, setting up a test of key support near $440.

On the headline numbers, CrowdStrike posted adjusted EPS of $0.73, beating estimates of $0.65. Revenue came in at $1.103 billion, essentially in line with expectations of $1.104 billion. However, the Q2 revenue guidance of $1.145-$1.152 billion came in slightly below the $1.16 billion consensus, while EPS guidance of $0.82-$0.84 was roughly in line. The full-year guidance for revenue of $4.743-$4.805 billion and EPS of $3.44-$3.56 was reaffirmed, providing stability but no upside.

A critical metric for CrowdStrike, Annual Recurring Revenue (ARR), rose 22% year-over-year to $4.44 billion. Net new ARR in the quarter totaled $194 million, modestly ahead of expectations and a positive sign for future growth. Management reiterated its long-term goal of reaching $10 billion in ARR, highlighting continued traction in Falcon Flex and emerging product lines like cloud security, identity protection, and next-gen SIEM.

Despite the top-line miss, there were bright spots. The company achieved record operating cash flow of $384 million and free cash flow of $279 million. It also announced a new $1 billion share repurchase program, a move welcomed by shareholders given the company’s $4.61 billion cash balance and concerns around stock-based compensation dilution. This could help mitigate dilution and support the stock during volatile periods.

CEO George Kurtz struck a confident tone, noting record MSSP momentum, strong net retention, and growing enterprise consolidation on the Falcon platform. CFO Burt Podbere added that Q1 results came in ahead of internal expectations and reaffirmed the company’s belief in a second-half reacceleration in net new ARR and margin expansion.

Enterprise demand appeared resilient despite macro uncertainty. Module adoption remained strong, with 48% of customers using six or more modules. The company noted $3.2 billion in total Falcon Flex deal value, growing more than 6x from the prior year. CrowdStrike’s innovation engine also remained in high gear, with new launches across AI, exposure management, and data protection. Recent partnerships with Microsoft and Google Cloud underscored the growing role of Falcon in modern security architectures.

Still, concerns linger. GAAP losses widened to $111 million, and non-GAAP operating income dipped slightly to $201 million from $213 million a year earlier. While not alarming, this raised some eyebrows given the company’s lofty valuation. Additionally, some analysts flagged that Q1 results, while solid, didn’t offer the upside needed to justify the stock’s recent rally.

Looking ahead, CrowdStrike’s path to $10 billion in ARR remains intact, but execution will be key. The market will closely watch the second half of the year for signs of accelerated deal activity and improved margins. With a clear leadership position in endpoint and identity security, growing AI capabilities, and now a capital return program in place, CrowdStrike remains a top-tier name in cybersecurity. But at current valuations, expectations are sky-high—and that leaves little room for error.