CrowdStrike shares tumble on light guidance. Here’s why we’re upgrading the stock anyways

CrowdStrike reported a strong fourth-quarter results Tuesday night, delivering beats on revenue, adjusted earnings and net new annual recurring revenue. However, the stock is under pressure in extended trading after the fast-growing cybersecurity company’s fiscal 2026 full-year outlook was slightly below the consensus forecast. After booking profits in CrowdStrike a couple of times above $400 per share earlier this year, we can look to buy those shares back at these lower prices. Revenue in the fiscal 2025 fourth quarter increased 25% year over year to $1.06 billion, beating the consensus estimate of $1.03 billion, according to LSEG. Adjusted earnings per share (EPS) increased 8% annually to $1.03 in the three months ended Jan. 31, ahead of the 85-cent estimate, LSEG data showed. Annual recurring revenue (ARR) grew 23% to $4.24 billion, also ahead of the $4.21 billion estimate, according to FactSet. This represented a net new addition of $224.3 million. Remaining performance obligation increased 41% year-over-year to $6.5 billion, beating the $5.59 billion consensus estimate compiled by FactSet. CrowdStrike shares fell more than 9% in after-hours trading to roughly $354. This level would mark a 22% pullback from the stock’s closing high of $455.36 per share made on Feb. 18. CrowdStrike has been under pressure over the past three weeks as part of the reversal of red-hot momentum tech stocks and the broader market sell-off on economic and tariff fears. At $354 per share, CrowdStrike is up roughly 3.5% year to date compared to the nearly 2% decline in the S & P 500 . CrowdStrike Why we own it: Cybersecurity is a must-have for companies in the digital age, and led by co-founder and CEO George Kurtz, CrowdStrike is one of the best there is (along with fellow Club name Palo Alto Networks). The company specializes in endpoint protection through its AI-native platform called Falcon. The stock’s fall in response to a faulty software update last year provided us an attractive entry point in. Competitors: Palo Alto Networks, Fortinet, SentinelOne, Microsoft Portfolio weighting: 2.56% Most recent buy: Jan. 13, 2025 Initiation date: Oct. 16, 2024 Bottom line We’ve long believed cybersecurity is essential for companies of all sizes, and it’s an area that requires continual business investment. A breach of a company’s data can be very costly — for both its finances and reputation. We also live in a world where bad actors are becoming more sophisticated every day. Companies must ensure that they have every part of their systems protected, but all it takes for a breach is the hacker getting it right once. That’s why we continue to believe in owning CrowdStrike. Investing in best-of-breed companies is a time-honored strategy, and CrowdStrike’s endpoint cybersecurity solutions — think protecting laptops, desktops and cellphones — remain above the rest. Palo Alto Networks also fits description for its network security. On Tuesday’s earnings call, CrowdStrike CEO George Kurtz said the company is “placed at the epicenter of a rapidly evolving demand environment.” He cited a new administration in the White House, advancements in artificial intelligence, and a new threat landscape as reasons why it is necessary for all businesses to evolve their cyber programs. “Our threat intelligence practice sees nation-state cybercraft proliferation at all-time new highs,” he said. “A new wave of nationalism and threat actors is creating adversary stockpiling akin to the Cold War era. … And with tools such as making AI access easier and cheaper, the pace and prevalence of adversarial AI adoption is only accelerating. It is in this intensifying threat landscape that CrowdStrike and our threat intelligence expertise shines.” CRWD 1Y mountain CrowdStrike’s stock performance over the past 12 months. Based on the continued strength of CrowdStrike’s fourth-quarter results, it remains clear to us that the CrowdStrike Falcon platform is the preferred choice of customers, especially when they are in need of an AI-native security operations center, or SOC. CrowdStrike is in a great position to benefit from the cybersecurity investment trend, but the stock has become a foe in extending trading, with shares down roughly 9%. The sell-off is likely in reaction to the soft guidance, especially on operating margins. Although disappointing, we think the company’s outlook embeds a level of conservatism that they can beat through the year. We’ll continue to digest the quarter overnight, but if shares are trading this low Wednesday morning, we’ll likely be buying some stock back that we sold two times earlier this year — first in January and then again February — at much higher prices. As always, we will send an email if we make that decision. We are upgrading our rating to a buy-equivalent 1 on this sell-off, while maintaining our price target of $400 per share. Quarterly commentary It’s no secret that Kurtz and his team have tirelessly worked to keep every single customer happy following the July 19 global IT outage caused by CrowdStrike’s faulty software update. One part of their strategy was to offer customers additional products and Flacon Flex subscriptions through what they called a customer commitment package, or CCP. Basically, these were incentive packages used to keep customers from switching cybersecurity providers. And it’s worked out incredibly well. The company put together another strong quarter of customer retention. The gross customer retention rate was 97%, in line with its result in the third quarter. On a net basis, the dollar-based retention was 112% in the quarter. CrowdStrike defines dollar-based net retention as “ARR from a set of subscription customers against the same metric for those subscription customers from the prior year.” In other words, it shows that existing customers are spending more with CrowdStrike — in this case, 12% more on average than they did a year ago. These figures show customers have made a strong commitment to its Falcon platform, which uses AI and operates entirely in the cloud, allowing for rapid updates, scalability, and ease of deployment. It stops breaches and saves time by speeding up threat protection and response time. The platform is made up of modules that each provide a specific security capability, such as endpoint and identity protection. Not only are customers sticking with CrowdStrike, the CCP program led to greater adoption of the company’s Falcon Flex offering. This product is a subscription model that allows customers to swap one module for another as needed to achieve the lowest total cost of ownership while optimizing security. In the fourth quarter, CrowdStrike added over $1 billion of total account Flex deal value. “The CCP program was an excellent proactive measure, which not only built our relationship with impacted customers, but also resulted in significant platform adoption,” Kurtz explained on the conference call. Now that the IT outage is several quarters behind them, CrowdStrike said it will end the CCP program. With Flacon Flex adoption rates strong, Kurtz expects the end of this program will reaccelerate net new ARR in the second half of this year. That’s consistent with what he said last quarter. Guidance For full year fiscal 2026, CrowdStrike management expects the following: Total revenue of $4.743 billion to $4.805 billion, which at the midpoint is in line to slightly better than the $4.768 billion consensus estimate, according to FactSet. Adjusted EPS in the range of $3.33 to $3.45, which is well below the $4.40 consensus estimate at the midpoint, FactSet data showed. One reason for the big discrepancy was a change in the company’s long-term projected tax rate. The estimated impact to adjusted earnings from the new rate is a 98-cent headwind at the midpoint of its full-year outlook. Backing out the tax-rate change, the midpoint would be $4.37 a share. While that’s still a few cents below the consensus forecast, it helps clear up some confusion around the sizable shortfall. Adjusted operating income between $944.2 million and $985.1 million, which at the midpoint of $964.65 million missed the consensus of $1.01 billion, according to FactSet. For the fiscal first quarter, CrowdStrike’s revenue guidance at the midpoint was roughly in line with the consensus forecast. However, its outlook was below estimates on operating income and adjusted earnings per share. The tax headwind mentioned above is estimated to have a 19-cent impact to first-quarter earnings. (Jim Cramer’s Charitable Trust is long CRWD, PANW and MSFT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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CrowdStrike Holdings Inc. signage on the floor of the New York Stock Exchange on July 22, 2024.

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