Stock of the Week - CrowdStrike (06.03.2025)

CrowdStrike Holdings Inc. (CRWD.US) shares fell yesterday (05.03.2025) 6% following the cybersecurity leader's disappointing earnings outlook, highlighting ongoing challenges in the aftermath of last year's disruptive software outage that crashed millions of Windows systems globally. While posting strong Q4 FY2025 results with revenue beating expectations, the company's guidance for FY2026 profitability significantly missed analyst projections, raising concerns about its recovery trajectory and competitive position.

Revenue & Profitability: CrowdStrike reported Q4 revenue of $1.06 billion, up 25% year-over-year and exceeding analyst expectations of $1.04 billion. The company achieved an adjusted EPS of $1.03, surpassing the consensus estimate of $0.86. Annual Recurring Revenue (ARR) reached $4.24 billion, representing 23.5% year-over-year growth, with Net New ARR of $224.3 million exceeding analyst expectations of $198 million. Despite these positive metrics, GAAP net loss for the quarter was $92.3 million, compared to net income of $53.7 million in the same period last year.

Earnings vs Estimates. Source: Bloomberg

FY2026 Guidance Concerns: For Q1 FY2026, CrowdStrike forecasts revenue between $1.10-1.11 billion, in line with analyst expectations, but its adjusted EPS guidance of $0.64-0.66 falls significantly short of the $0.96 consensus. Full-year guidance reveals even more substantial gaps, with adjusted operating income forecast of $944.2-985.1 million below expectations of $1.03 billion, and adjusted EPS outlook of $3.33-3.45 dramatically underperforming analyst projections of $4.43.

Outage Recovery Impact: The company disclosed $21 million in costs related to the July 19th outage for Q4, bringing the fiscal year's total to $60.1 million. Management anticipates an additional $73 million in outage-related expenses in Q1 FY2026, plus $43 million associated with customer commitment programs launched to retain clients after the incident. CEO George Kurtz announced the company is ending these discount programs, characterizing Q4 as the beginning of a "comeback story" and expressing confidence that growth will accelerate in the second half of FY2026 as "one-time discounts drop off."

Outlook. Source: Q4 FY2025 Crowdstrike Financial Results Presentation

Strategic Position & Competitive Landscape: Despite recent challenges, CrowdStrike maintains its leadership position in the cybersecurity market with its Falcon platform, which leverages AI to provide comprehensive protection against sophisticated threats. The company's Falcon Flex subscription model continues gaining traction, helping drive accelerated module adoption across customers. Accounts adopting the Falcon Flex model now represent $2.5 billion in total deal value, a 93% sequential increase from $1.3 billion in Q3. However, competition from SentinelOne is intensifying, with some analysts suggesting that SentinelOne may be the greatest beneficiary of CrowdStrike's outage, potentially gaining market share as some customers reevaluate their cybersecurity providers.

Total Adressable Market. Source: Q4 FY2025 Crowdstrike Financial Results Presentation

Analyst Perspective: Following the earnings report, several firms maintained positive ratings but expressed concerns about near-term profitability. Wedbush maintained its Outperform rating, noting that "CRWD remains the gold standard for cybersecurity with the outage mostly in the rearview." BofA Securities reiterated its Buy rating, stating that "results were strong" but flagging deceleration in Net Revenue Retention and difficulties maintaining upsell momentum.

Future Outlook: Looking ahead, CrowdStrike is navigating a challenging period of recovery while maintaining investment in innovation, particularly in AI capabilities. CEO Kurtz emphasized the escalating cyber threat environment, noting that "break out times" by hackers have accelerated to just 51 seconds, creating demand for advanced security solutions. The company's commitment to allocating at least 15% of revenue to R&D suggests continued focus on technological leadership despite near-term margin pressure. Management remains confident in achieving approximately $10 billion in annual recurring revenue by fiscal 2031, supported by industry tailwinds as organizations prioritize cybersecurity amidst increasing threat sophistication and geopolitical tensions.

Valuation 

Based on our analysis of CrowdStrike using the provided sensitivity tables, we've developed projections incorporating various growth scenarios. Our base case DCF model uses the following key assumptions:

Core Operating Assumptions

• Revenue growth rate: 27.0-28.0% for the initial period

• Operating margin: 25.0-26.0%

• Terminal revenue growth: 4.0%

• Terminal WACC: 9.5%

• Current price: $365.44

DCF Sensitivity Analysis

Our analysis demonstrates CrowdStrike's valuation dynamics under different operating scenarios. With a 27.0% revenue growth rate and 25.0% operating margin, the model indicates a fair value of $330.94. Increasing the revenue growth to 28.0% with a 26.0% operating margin would elevate the implied value to $369.92, suggesting approximately 1.2% upside potential from current levels.

The terminal value sensitivity analysis, examining various WACC and growth rate combinations, shows that with a terminal revenue growth rate of 4.0% and terminal WACC of 9.5%, the model suggests a fair value around $330.94. However, if we optimize to a 4.2% terminal growth rate with a WACC of 9.3%, the implied value increases to $350.53.

Source: Bloomberg Finance LP, XTB Research

Source: Bloomberg Finance LP, XTB Research

Recommendations: 

CrowdStrike has 55 recommendations, with 40 "buy" and highest price of $475, 13 “hold” and 2 “sell” with the lowest price of $185. The 12-month average stock price forecast is $413.05, implying a 13.1% upside potential from the current price.

Technical analysis (Daily interval): 

The shares are currently trading above the 38.2% Fibonacci retracement level, which coincides with the 100-day SMA. Bears will aim to test the 200-day SMA at $333.33, with a target at the 61.8% Fibonacci retracement level at $297.79. For bulls to regain control, they need to swiftly reclaim the 50-day SMA at $386.18, with a target at the 23.6% Fibonacci retracement level. The RSI, after a period of consolidation, is on track to create a bearish divergence with lower lows and lower highs, while the MACD continues to widen in a downtrend.