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Why CrowdStrike Stock Just Dropped 12%

Rich Smith, The Motley Fool

What happened

Shares of CrowdStrike Holdings (NASDAQ: CRWD) stock are tumbling, down 12% as of 12:50 p.m. EDT despite the cloud-based security software maker reporting estimate-beating results in its Q2 earnings report last night -- and better-than-expected guidance as well.

For Q2, analysts had predicted CrowdStrike would lose $0.23 per share (pro forma) on sales of $103.8 million. Instead, management reported a loss of "only" $0.18 per share -- and sales of $108.1 million.

A declining stock chart superimposed over a digital leader board.
A declining stock chart superimposed over a digital leader board.

So what

Sales nearly doubled year over year and were up 94%. Some 90% of those sales came from recurring revenue subscriptions, a segment that grew even faster than overall sales: up 98% year over year. CEO George Kurtz hailed the securing of "a record number of net new subscription customers in the quarter" as a key accomplishment.

Gross margins on all these new revenues also improved, rising 4 full percentage points to 74%. Nevertheless, this fast-growing company still lost money: $0.18 per share pro forma and $0.40 per share as calculated according to generally accepted accounting principles (GAAP).

Now what

The good news is that these losses were a whole lot better than the $0.75 per share lost in the year-ago quarter, and CrowdStrike predicts continued improvement as time goes by. New guidance is for Q3 sales to range from $117.1 million to $119.5 million (both numbers better than the $111.2 million Wall Street consensus) with a pro forma loss of $0.11 or $0.12 (Wall Street had worried $0.13 was more likely).

Full-year sales could come in between $445.1 million and $451.8 million (only $434.9 million is expected), with a pro forma loss of between $0.62 and $0.65 per share, versus the $0.73-per-share loss Wall Street is looking for.

In short, the company crushed expectations and is promising to do so again and again as the year rolls along -- yet despite all that, investors are selling the stock.

Go figure.

More From The Motley Fool

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

This article was originally published on Fool.com