Share prices of CrowdStrike (CRWD -2.76%) fell after the company reported its fiscal third-quarter results, as it continues to deal with the aftermath of the network outage that affected its clients earlier this year. The stock, nonetheless, has largely recovered from that incident and is up about 36% on the year as of this writing, even after the post-earnings pullback.
Let's take a closer look at the cybersecurity company's most recent results to see whether this dip is a good opportunity to buy the stock.
Strong revenue growth
While the big outage from this summer continues to affect CrowdStrike, the company is managing it well and seeing 97% gross customer retention in the quarter. However, it said the incident has caused an extended sales cycle and increased scrutiny around customers approving deals.
The company has also offered its clients what it is calling customer commitment packages, which can be a combination of new modules, added subscription time, and flexible payment terms (Flex dollars), as a result of the outage. It said these packages affected its new annual recurring revenue (ARR), which is the annualized value of its customer subscription contracts, by $25 million.
However, the combination of these customer commitment packages and its Falcon Flex subscription model helped drive increased adoption of its modules. Overall, 66% of its customers now use five or more modules, while 20% deploy eight or more. Falcon Flex customers, meanwhile, deploy nine of its modules on average. This helped lead CrowdStrike to have 115% net dollar retention in the quarter.
Revenue jumped 29% to $1.01 billion, which was easily ahead of the $979.2 million to $984.7 million the company had forecast. Subscription revenue climbed 31% to $962.7 million.
Its ARR rose 27% to $4.02 billion. It added $153 million in new ARR during the quarter. ARR can be an indication of future revenue growth, and the number was a deceleration from the 32% increase it saw last quarter. However, as noted above, this is affected by its use of customer commitment packages.
Image source: Getty Images.
The company's adjusted earnings per share (EPS) rose 13% to $0.93. That easily surpassed its guidance for adjusted EPS of between $0.80 to $0.81.
CrowdStrike continues to throw off a large amount of cash, with operating cash flow of $326.1 million and free cash flow of $230.6 million. It ended the period with about $4.3 billion in net cash and short-term investments.
Looking ahead, CrowdStrike guided for fourth-quarter revenue to come in between $1.03 billion and $1.04 billion, with adjusted EPS of between $0.84 and $0.86.
After lowering its full-year guidance last quarter, the company slightly increased it. Below is a table of the guidance changes.
| Full Fiscal Year Forecasts | ||||
|---|---|---|---|---|
| Original Guidance |
June Guidance | August Guidance | Current Guidance |
|
| Revenue | $3.92 billion to $3.99 billion | $3.98 billion to $4.01 billion | $3.89 billion to $3.90 billion | $3.92 billion to $3.93 billion |
| Adjusted EPS | $3.77 to $3.97 | $3.93 to $4.03 | $3.61 to $3.65 | $3.74 to $3.76 |
Data source: CrowdStrike earnings reports. Note: Original guidance issues in March 2024.
Is it time to buy the dip?
CrowdStrike continues to manage the fallout from its widely publicized outage that wreaked havoc across various industries over the summer. While this is affecting its growth, the company also appears to be turning it into an opportunity by giving customers new modules and Flex dollars, which could lead to adoption and customers paying for these modules in the future.
That said, the stock continues to trade at a pretty hefty multiple and above the valuation of its peers, with a forward price-to-sales (P/S) multiple of nearly 18 times next year's analyst estimates. Meanwhile, the deceleration in its ARR could translate to slower revenue growth in the coming quarters.
CRWD PS Ratio (Forward 1y) data by YCharts.
Overall, I think CrowdStrike will be a solid stock over the long term given its strong cybersecurity platform. It's likely that customers will continue to consolidate around a few vendors for a unified cybersecurity platform, rather than relying on various point solutions that may not always work best together.
That said, I think the stock is a bit ahead of itself from a valuation standpoint, especially as it continues to deal with the aftereffects of its earlier outage and the effect that it could have on revenue growth.
