CRWD slips 10% in reaction to earnings; Analysts remain upbeat

CrowdStrike (CRWD) delivered strong Q3 results, surpassing both EPS and revenue expectations. Adjusted EPS came in at $0.93, well above the $0.81 consensus estimate. Revenue reached $1.01 billion, exceeding analyst forecasts of $983.1 million. Subscription revenue, a critical driver, was $962.7 million, beating estimates of $934.3 million, while professional services revenue slightly missed at $47.4 million (versus $49.9 million expected). These results highlight the company's, though lingering challenges such as stock-based compensation costs ($208.9 million vs. $195 million expected) and a $26 million hit to net new ARR from a non-recurring federal contract were noted.

The company achieved over $4 billion in total annual recurring revenue (ARR), a 27% year-over-year increase, slightly ahead of the Street's $4.01 billion forecast. However, net new ARR (NNARR) fell short of expectations due to elongated sales cycles and residual impacts from the July security outage. Gross retention remained strong, declining less than 0.5% sequentially, signaling solid customer loyalty. Notably, CrowdStrike closed over 150 "Flex" deals with a total contract value exceeding $600 million, showcasing its success in multi-module adoption and customer commitment.

Key drivers included robust demand for the Falcon platform, which continues to lead in endpoint protection and drive customer consolidation efforts. The "Flex" program and broader financial services segment contributed to higher module adoption, larger deal sizes, and extended contract durations. However, the lingering effects of the July outage and a cautious macroeconomic environment impacted sales cycles and pipeline visibility, tempering the quarter's overall momentum.

CrowdStrike provided mixed guidance for Q4. It forecast adjusted EPS of $0.84 to $0.86, slightly below the consensus of $0.87. Full-year adjusted EPS guidance, however, was raised to $3.74-$3.76 (from $3.61-$3.65). Analysts were generally positive, with price targets rising across firms like Piper Sandler ($375), Needham ($420), and Susquehanna ($400). Analysts highlighted the company's solid execution but acknowledged concerns about ARR growth visibility and the lingering effects of the outage on sales cycles.

Despite the strong Q3 beat, CRWD shares dropped about 11% in early trading, testing the 10-day moving average (DMA) at $356. This sharp decline followed a significant run-up ahead of the report, leaving investors concerned about near-term ARR visibility and guidance. Key technical support looms at the 20-day moving average of $338, which, if breached, could signal further downside pressure. Analysts noted that the stock might remain range-bound until greater clarity on ARR reacceleration emerges.

Despite short-term challenges, analysts remain optimistic about CrowdStrike's long-term prospects. The company continues to lead in cybersecurity innovation, expanding its portfolio into areas like cloud, identity, and next-gen SIEM. Multi-module adoption trends and strong customer retention underscore the company's potential for sustained growth. JMP, for example, raised its FY25 and FY26 EPS estimates and maintained a $400 price target, citing CrowdStrike's leadership in endpoint security and its growing addressable market.

CrowdStrike's forward valuation remains a topic of debate. JMP estimates a CY26 EV/revenue multiple of 14.2x and an EV/FCF multiple of 43.3x, implying a premium to its peer group. However, analysts believe this premium is justified given the company's strong positioning and potential to capitalize on market trends like cloud security and XDR adoption. The ability to navigate challenges, such as the July outage and macroeconomic uncertainty, will be critical to sustaining this valuation.

While the Q3 results showcased robust fundamentals and operational success, short-term headwinds related to ARR growth and sales visibility weighed on the stock. Nevertheless, analysts remain broadly optimistic about CrowdStrike's future, with a focus on its leadership in cybersecurity and potential for long-term ARR acceleration. Investors are likely to monitor upcoming quarters closely for signs of recovery in NNARR and further clarity on the macro and competitive landscape.