Shares of CrowdStrike Holdings(NASDAQ: CRWD) shot up an impressive 83% in the past year, but the stock has been in free-fall mode in the past month and a half thanks to a faulty software update that caused a global IT outage on July 19.
More specifically, CrowdStrike stock lost 13% of its value since that day. It is also worth noting that the cybersecurity stock has retreated nearly 33% from the 52-week highs it hit on July 9. Amid all this negativity, CrowdStrike's fiscal 2025 second-quarter report (for the three months ended July 31) held a lot of significance.
The cybersecurity specialist released its quarterly report on Aug. 28 and its stock dipped around 2% in pre-market trading the following day. Let's see why that was the case and check if there is any possibility of a turnaround in its fortunes.
CrowdStrike's results weren't as bad as feared
CrowdStrike reported fiscal second-quarter revenue of $964 million, up 32% from the same quarter last year. Its non-GAAP (adjusted) net income climbed an impressive 40% year over year to $1.04 per share. Wall Street would have settled for $0.97 per share in earnings on revenue of $958 million, but CrowdStrike managed to do better than that despite the outage that caused huge financial losses to the likes of Delta Air Lines.
However, CrowdStrike reduced its full-year revenue guidance to a range of $3.89 billion to $3.9 billion from the earlier range of $3.98 billion to $4.01 billion. Wall Street was anticipating $3.95 billion in fiscal 2025 revenue, and this weaker-than-expected guidance is probably why CrowdStrike stock dipped following its results.
The good news, however, is that the company still expects to post revenue growth of 27% from fiscal 2024 levels, despite having trimmed its guidance by 2.5% at the midpoint. For the current quarter as well, CrowdStrike is expecting its top line to increase by a healthy 25% from the same quarter last year to $982 million at the midpoint. The company's updated fiscal 2025 adjusted earnings guidance of $3.63 per share would be a 17% increase over fiscal 2024 levels.
CrowdStrike reduced its fiscal 2025 earnings estimate from the earlier expectation of $3.98 per share on account of the compensation package it has designed in the wake of the outage. CFO Burt Podbere remarked on the latest earnings conference call that: "As reflected in our revenue guidance in the short term, we expect our commitment packages will result in temporarily muted upsell dollar values and temporarily higher than typical levels of contraction due to elongated subscription terms. We estimate these packages will impact net new ARR and subscription revenue by approximately $60 million and professional service revenue by high single-digit million dollars in the back half of FY '25."
More importantly, management also added on the conference call that its "customer agreements contain provisions limiting our liability, and we maintain insurance policies intended to mitigate the potential impact of certain claims and have a strong cash position."
For example, CNN points out that CrowdStrike's liability with Delta is limited to $10 million even though the airline reportedly suffered a $500 million revenue loss because of the outage. Also, management pointed out that it continued to land customers even after the July 19 incident. One of them was an eight-figure deal with a major enterprise software company where CrowdStrike replaced another vendor. The second was a nine-figure deal for its Falcon Cloud security platform.
Should investors consider buying this cybersecurity stock?
CrowdStrike's latest results indicate that it may be able to manage the fallout of the July 19 incident. But at the same time, investors would do well to keep an eye on its deal activity over the next few quarters and see if CrowdStrike can continue to remain on customers' good side by winning more business from them and attracting new accounts.
What's worth noting here is that even though analysts reduced their growth expectations from CrowdStrike, it is still expected to clock a 20%-plus earnings growth rate over the next couple of years.
CRWD EPS Estimates for Current Fiscal Year data by YCharts
Similarly, the company's top line is also forecast to clock a 20%-plus growth rate in the current and the next two fiscal years.
CRWD Revenue Estimates for Current Fiscal Year data by YCharts
Those growth rates seem robust despite the recent challenges that the company has faced. However, CrowdStrike is trading at an expensive 18 times sales and 66 times forward earnings. Buying CrowdStrike at these multiples looks like a risky bet considering its lowered guidance, as well as the fact that the company's CFO remarked on the earnings call that "the outcome of litigation is inherently difficult to predict, particularly in the early stages and it is still too early for us to estimate any potential legal exposure we may have at this time."
So, it would be a good idea for investors to adopt a wait-and-watch approach as the entire picture may not have unfolded so far.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool has a disclosure policy.
