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CrowdStrike (CRWD) Up 31.4% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
·4 min read

A month has gone by since the last earnings report for CrowdStrike Holdings (CRWD). Shares have added about 31.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is CrowdStrike due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

CrowdStrike's Q3 Earnings & Revenues Top Estimates

CrowdStrike reported third-quarter fiscal 2020 non-GAAP earnings of 8 cents per share as against the Zacks Consensus Estimate of break-even profit. Quarterly earnings also marked significant improvement from the year-ago quarter’s loss per share of 7 cents.

Top Line Details

CrowdStrike’s fiscal third-quarter revenues of $232.5 million surged 86% year over year as well as beat the consensus mark of $213.7 million. Subscription revenues jumped a whopping 87% year over year to $213.5 million.

An 85% increase in subscription customers led to this impressive growth. CrowdStrike added 1,186 net new subscription customers during the reported quarter. The company had a total of 8,416 subscription customers as of Oct 31, 2020.

Moreover, CrowdStrike’s subscription customers that adopted four or more cloud modules increased to 61%, those with five or more cloud modules rose to more than 44%, and for six or more cloud modules jumped to 22% as of Oct 31, 2020.

Revenues from professional services soared 73.7% year over year to $18.9 million.

The company added $116.8 million to its net new average run rate (ARR) year over year, achieving $907.4 million, up a whopping 81% from the year-ago quarter.

Dollar-based net retention rate exceeded 120% in the reported quarter.

Operating Details

CrowdStrike’s non-GAAP gross margin expanded 400 basis points (bps) on a year-over-year basis to 76%. Subscription gross margin advanced 200 bps to 78%. Moreover, professional services gross margin increased to 45% from the year-ago quarter’s 33%.

Non-GAAP research & development (R&D) expenses as a percentage of revenues shrunk 530 bps on a year-over-year basis to 19.7%. In addition, non-GAAP general & administrative (G&A) expense, as a percentage of revenues, contracted 330 bps to 8%.

Further, non-GAAP sales & marketing (S&M) expenses as a percentage of revenues were 39.9%, significantly down from the year-ago quarter’s 49%.

Total non-GAAP operating expenses as a percentage of revenues were 67.6% compared with the prior-year quarter’s 85.3%.

Non-GAAP operating income was $18.9 million against the loss of $16.5 million reported in the year-ago quarter. Non-GAAP operating margin for the quarter was 8%.

Balance Sheet & Cash Flow

As of Oct 31, 2020, cash and cash equivalents were $1.06 billion compared with $1.07 billion as of Jul 31, 2020.

During the fiscal third quarter, the company generated operating and free cash flows of $88.5 million and $76.1 million, respectively.

Guidance

For fourth-quarter fiscal 2021, CrowdStrike anticipates revenues between $245.5 million and $250.5 million. As far as the bottom line is concerned, the company expects to report earnings per share between 8 cents and 9 cents.

For fiscal 2021, management raised its revenue guidance range to $855-$860 million from the $809.1-$826.7 million projected earlier. The company now anticipates non-GAAP earnings per share of 21-22 cents compared with the previous expectations of 2-8 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 49.07% due to these changes.

VGM Scores

At this time, CrowdStrike has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise CrowdStrike has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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