Insights

As Hackers Proliferate, CrowdStrike’s Business Booms

According to cybersecurity experts, the first known instance of a “ransomware” attack — a cyberattack in which hackers lock up a computer and refuse to unlock it until the requested money is paid — dates to 1989 when a trojan virus loaded by floppy disk instructed its hapless users to mail $189 to a post office address in Panama. While not entirely unknown, though, until recent years this phenomenon was so rare that no one thought to come up with a name for it until 2013.
My, how times have changed.
Cybersecurity organization BlackFog estimates more than 100 separate ransomware attacks have been documented in 2022 already, and in the first five months of 2022, that number has already topped 130 — an increase of about 10% over the prior year.  While this sounds like bad news for companies and for individuals — for anyone who owns a computer, really — it also means that CrowdStrike’s (NASDAQ: CRWD) booming cybersecurity business will probably remain relevant for some time to come.
Case in point: CrowdStrike’s first-quarter 2023 earnings.
Image source: Getty Images.

CrowdStrike by the numbers
In announcing financial results for its fiscal Q1 2023 Thursday evening, CrowdStrike reported that its sales grew another 61% year over year in the quarter, crushing analyst estimates and falling just shy of the 63% growth rates the company posted over the last couple of quarters. Subscription customers are up 57% year over year at 17,945. “Annual recurring revenue” — a metric that takes present-day revenues and projects them out 12 months — likewise jumped 61%, such that even if CrowdStrike were to screech to a halt and stop growing right this moment, it would still be reporting $1.9 billion in annual business.    
Profits-wise, CrowdStrike still isn’t “profitable” using generally accepted accounting principles (GAAP) measurements. The company lost $0.14 per share in the quarter — but even that was much less than the $0.38 per share it was losing a year ago. And regardless of its GAAP calculation, from a cash profits perspective, CrowdStrike generated $157.5 million in free cash flow in the quarter — up 34% from a year ago.
CrowdStrike followed up these superb results by promising continued growth in the fiscal second quarter and for the year as a whole. The company raised Q2 revenue guidance to a minimum of $513 million (Wall Street expects less than $510 million) and adjusted profits guidance to at least $0.27 per share (Wall Street is only expecting $0.24). For the year, CrowdStrike projects sales will be no less than $2.19 billion (Wall Street forecasts $2.15 billion), and adjusted earnings at least $1.18 per share (Wall Street thinks $1.10).
Long story short, CrowdStrike “beat and raised” in Q1 and plans to keep beating analyst estimates all year long. So why did the stock slip 3% after earnings came out on Thursday? And why is its stock — even after receiving an endorsement from investment bank Morgan Stanley on Monday — barely 3% above its pre-earnings price?
My best guess is this:
Assuming CrowdStrike hits its targets, revenue will grow at most 53% year over year in Q2, and only 52% for the year. Both those numbers — while well in excess of what Wall Street is expecting — imply a continued decline in CrowdStrike’s revenue growth rate. And while 53% or even 52% growth is still phenomenal, slowing growth predictions aren’t what growth investors wanted to hear from this company Thursday.
Furthermore, considering that analysts who follow CrowdStrike don’t see the company reporting any GAAP profits at all before 2026 at the earliest (according to estimates from S&P Global Market Intelligence), what you have here is a recipe for a post-earnings sell-off in CrowdStrike stock.
Which is exactly what we’re seeing now.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike Holdings, Inc. The Motley Fool has a disclosure policy. –

According to cybersecurity experts, the first known instance of a “ransomware” attack — a cyberattack in which hackers lock up a computer and refuse to unlock it until the requested money is paid — dates to 1989 when a trojan virus loaded by floppy disk instructed its hapless users to mail $189 to a post office address in Panama. While not entirely unknown, though, until recent years this phenomenon was so rare that no one thought to come up with a name for it until 2013.

My, how times have changed.

Cybersecurity organization BlackFog estimates more than 100 separate ransomware attacks have been documented in 2022 already, and in the first five months of 2022, that number has already topped 130 — an increase of about 10% over the prior year.  While this sounds like bad news for companies and for individuals — for anyone who owns a computer, really — it also means that CrowdStrike‘s (NASDAQ: CRWD) booming cybersecurity business will probably remain relevant for some time to come.

Case in point: CrowdStrike’s first-quarter 2023 earnings.

Image source: Getty Images.

CrowdStrike by the numbers

In announcing financial results for its fiscal Q1 2023 Thursday evening, CrowdStrike reported that its sales grew another 61% year over year in the quarter, crushing analyst estimates and falling just shy of the 63% growth rates the company posted over the last couple of quarters. Subscription customers are up 57% year over year at 17,945. “Annual recurring revenue” — a metric that takes present-day revenues and projects them out 12 months — likewise jumped 61%, such that even if CrowdStrike were to screech to a halt and stop growing right this moment, it would still be reporting $1.9 billion in annual business.    

Profits-wise, CrowdStrike still isn’t “profitable” using generally accepted accounting principles (GAAP) measurements. The company lost $0.14 per share in the quarter — but even that was much less than the $0.38 per share it was losing a year ago. And regardless of its GAAP calculation, from a cash profits perspective, CrowdStrike generated $157.5 million in free cash flow in the quarter — up 34% from a year ago.

CrowdStrike followed up these superb results by promising continued growth in the fiscal second quarter and for the year as a whole. The company raised Q2 revenue guidance to a minimum of $513 million (Wall Street expects less than $510 million) and adjusted profits guidance to at least $0.27 per share (Wall Street is only expecting $0.24). For the year, CrowdStrike projects sales will be no less than $2.19 billion (Wall Street forecasts $2.15 billion), and adjusted earnings at least $1.18 per share (Wall Street thinks $1.10).

Long story short, CrowdStrike “beat and raised” in Q1 and plans to keep beating analyst estimates all year long. So why did the stock slip 3% after earnings came out on Thursday? And why is its stock — even after receiving an endorsement from investment bank Morgan Stanley on Monday — barely 3% above its pre-earnings price?

My best guess is this:

Assuming CrowdStrike hits its targets, revenue will grow at most 53% year over year in Q2, and only 52% for the year. Both those numbers — while well in excess of what Wall Street is expecting — imply a continued decline in CrowdStrike’s revenue growth rate. And while 53% or even 52% growth is still phenomenal, slowing growth predictions aren’t what growth investors wanted to hear from this company Thursday.

Furthermore, considering that analysts who follow CrowdStrike don’t see the company reporting any GAAP profits at all before 2026 at the earliest (according to estimates from S&P Global Market Intelligence), what you have here is a recipe for a post-earnings sell-off in CrowdStrike stock.

Which is exactly what we’re seeing now.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike Holdings, Inc. The Motley Fool has a disclosure policy.

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