CrowdStrike (CRWD) Getting Struck Down Despite Issuing Beat-And-Raise Report

2:57 pm Wednesday, August 31st, 2022

Bolstered by enduring demand for cybersecurity products and its strong competitive standing, Crowdstrike (CRWD) once again delivered an impressive beat-and-raise quarterly report. Since going public in June of 2019, CRWD has exceeded analysts’ top and bottom-line expectations in every quarter. In a crowded space that offers investors many options, CRWD’s consistency and high growth rates have helped separate it from the pack. However, it seems that the company is becoming a victim of its own success as a sense of complacency among investors sets in.

Reminiscent of last quarter, CRWD is succumbing to a sell-the-news reaction after the stock had rallied ahead of its Q2 results. Also similar to last quarter, expectations were ratcheted higher in the wake of upbeat earnings reports from CRWD’s competitors. For instance, Palo Alto Networks (PANW) issued a beat-and-raise report last week that featured a 44% increase in billings. Also, a couple weeks prior to PANW, Qualys (QLYS) comfortably beat Q2 expectations, while significantly boosting its FY22 EPS guidance.

Still, Kurtz isn’t overly concerned since cybersecurity is not a discretionary investment for CIOs and CTOs. This prioritization is evident across CRWD’s Q2 metrics.

Customers are adopting an increasing number of CRWD’s modules, pushing gross retention rates to record highs in Q2. As of July 31, subscription customers that have adopted five or more, six or more and seven or more modules was 59%, 36% and 20%, respectively.

Net new subscription additions were yet another record, with 1,741 new customers coming on board for a total of 19,686 customers.

Many companies would gladly accept CRWD’s high double-digit revenue growth, improving profitability (Q2 EPS up 227% yr/yr), and consistent outperformance relative to expectations. The challenge is that investors have come to expect this high level of performance every quarter. As a result, the stock is priced-to-perfection, so any blemish is put under the microscope and intensely scrutinized. Today, the limited increase to CRWD’s FY23 guidance, and the executive’s commentary revolving around that guidance, is providing the impetus for a sell-the-news reaction.