Shares of CrowdStrike Holdings (CRWD -2.76%) fell 4.5% following the release of the company's fiscal 2025 third-quarter results (for the three months ended Oct. 31) on Nov. 26 -- and this was even though it delivered better-than-expected numbers and upgraded its guidance.
A closer look at the company's latest quarterly results will show that it is benefiting from improved cybersecurity spending, which is a positive sign in the aftermath of the July 19 outage caused by a glitchy software update that knocked out major IT systems across the globe.
Let's look at the reason why CrowdStrike stock dropped following its beat-and-raise quarterly report, and check if this could be an opportunity for savvy investors to buy the stock.
Results indicate that it is moving in the right direction
CrowdStrike's fiscal Q3 revenue increased 29% year over year to $1.01 billion. Its non-GAAP net income increased to $0.93 per share from $0.82 per share in the same period last year. Analysts were expecting CrowdStrike to deliver $982 million in revenue along with $0.81 per share in earnings. The company comprehensively beat these estimates thanks to an increase in customer spending on its cybersecurity offerings.
This was evident from the improving adoption rates of CrowdStrike's cybersecurity modules. For instance, the number of customers using five or more modules from CrowdStrike stood at 66% last quarter, up from 63% in the year-ago period. Meanwhile, the number of customers using seven or more modules came in at 31% as compared to 26% in the same period last year.
The increasing adoption of CrowdStrike's cybersecurity solutions helped boost the company's annual recurring revenue (ARR) to $4.02 billion, up 27% from the year-ago period. This metric refers to the annualized value of the company's subscription contracts at the end of a period. So, the healthy increment in CrowdStrike's ARR points toward an improved future revenue pipeline.
Additionally, CrowdStrike's existing customers are spending more on its platform. This was evident from the company's dollar-based net retention rate of 115% last quarter. The metric compares CrowdStrike's ARR at the end of a quarter to the ARR from the same set of customers in the prior-year period. So, a reading of more than 100% means that its existing customers have increased their adoption of its platform, or they have extended the usage of its solutions.
These numbers bode well for CrowdStrike following the fallout from the July 19 outage, after which the company had to offer incentives to customers in a bid to retain them and their confidence. The good part is that CrowdStrike's recovery seems to be well on track as it has increased its fiscal 2025 revenue guidance to a range of $3.92 billion to $3.93 billion as compared to the earlier guidance of $3.89 billion to $3.90 billion.
The updated guidance is higher than the $3.90 billion consensus estimate. Also, the company now expects full-year earnings to land at $3.75 per share as compared to the earlier forecast of $3.63 per share.
Stronger earnings growth could result in more upside
Analysts have increased their earnings growth expectations for CrowdStrike over the next couple of years.
CRWD EPS Estimates for Current Fiscal Year data by YCharts.
As the chart above shows, the cybersecurity specialist's earnings growth is expected to accelerate in fiscal 2027 following next year's anticipated gains of 17%. However, there is a good chance that CrowdStrike will be able to clock faster growth thanks to the healthy adoption of its cybersecurity solutions.
Moreover, CrowdStrike sees its total addressable market growing from $116 billion in 2025 to $250 billion. So, the company is scratching the surface of a massive growth opportunity that could help sustain its healthy growth for a long time to come. However, investors will have to pay a premium valuation to buy CrowdStrike now.
Savvy investors who capitalized on the massive drop in CrowdStrike stock following the July 19 incident are sitting on nice gains now. In fact, the stock is up an impressive 55% since the beginning of August, but that has sent its price-to-sales (P/S) ratio to 23. Also, the stock's forward earnings multiple of 83 remains expensive when compared to the tech-laden Nasdaq-100 index's forward earnings multiple of 31.
However, CrowdStrike may be able to justify its expensive valuation by delivering stronger-than-expected earnings growth in the future, which is why long-term investors looking for a growth stock can still consider buying it.
