We’re upgrading CrowdStrike despite a post-earnings stock drop
CrowdStrike shares declined Wednesday evening despite the cybersecurity firm reporting a clean beat across every key metric. While management raised its earnings per share outlook for the full year, the lack of an upside revenue guide as well pressured the stock in after-hours trading. Revenue in the fiscal 2026 second quarter increased 21% year over year to $1.17 billion, beating the consensus estimate of $1.15 billion, according to LSEG. Adjusted earnings per share (EPS) increased 6% to 93 cents in the three months ending July 31, beating the 83-cent estimate, LSEG data showed. Why we own it Cybersecurity is a must-have for companies in the digital age. 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. Competitors: Palo Alto Networks, Fortinet , SentinelOne , Microsoft Portfolio weighting: 2.8% Most recent buy: March 10, 2025 Initiation date: Oct. 16, 2024 Bottom line CrowdStrike put together a great quarter. In addition to revenue and adjusted EPS beats, the company posted record second-quarter net-new annual recurring revenue (ARR) of $221 million, which was approximately $19 million more than the consensus estimate. Net-new ARR growth was an acceleration that happened a quarter ahead of the expected schedule. Management expects growth to pick up even more during the back half of the company’s fiscal year. In simple terms, net-new ARR is a way to show how fast a company’s recurring revenue base is growing. It’s a great way to measure the health of a subscription-based company, and CrowdStrike management believes ARR is the best leading indicator of the business. The only blemish to the quarter was the underwhelming revenue guide for the third quarter and full fiscal year. CrowdStrike trades at a premium multiple, so we’re not shocked to see the stock get scrutinized in extended trading. Some of the miss may be due to conservatism, but what’s really happening here is a deviation of about $10 million to $15 million per quarter tied to the company’s customer commitment packages (CCP). CrowdStrike gave its customers some “freebies” to maintain high retention rates, reduce churn following the July 2024 global IT outage, but the program also resulted in significant adoption of its platform. CrowdStrike sees this $10 million to $15 million per quarter negative impact persisting through its fiscal 2026 fourth quarter before subsiding. CRWD 5Y mountain CrowdStrike 5 years Just over a year ago, CrowdStrike’s botched software update caused problems for computers around the world. After an initial stock drop after the incident, the company worked really hard to keep its customers, with great success and a stock that climbed to an all-time high last month. Shares of cybersecurity companies have come off the boil in recent weeks due to Fortinet and Check Point getting hammered after reporting. Palo Alto, our other portfolio cyber stock, delivered a beat and raise last week. Those shares, which jumped on earnings, have been recovering from a terrible selloff around its $25 billion CyberArk announcement. CrowdStrike moved off its after-hours lows after management said the fiscal second quarter results increased their conviction in achieving at least 40% year-over-year net-new ARR growth for the back half of the fiscal year, which would bring its ending ARR growth to more than 22%. Revenue left more to be desired, but management’s explanation of the lingering impacts from its CCP program, as well as its bullish outlook of the future, helped the stock recover some of its post-market losses. Still, shares have been volatile in after-hours trading. At one point, they traded as low as about $390, only to swing back above $400 as the earnings call progressed and eventually settled at nearly $405, or just over 4% lower from Wednesday’s closing price. The move extends what’s been a disappointing stretch this summer. After closing at a record high of $514 of July 3, CrowdStrike shares have dropped roughly 20% when factoring in the after-hours action. Given this fall from the highs and the after-hours drop on what we view as strong results, we are upgrading the stock to our buy-equivalent 1 rating. We kept our price target on the stock at $520. Commentary CrowdStrike’s financial results were all better than expected. We mentioned the top and bottom line beat earlier, but the company also delivered total ARR growth of 20% year over year and record free cash flow for its fiscal second quarter. Behind the strong results was continued adoption of CrowdStrike’s Falcon Platform through Falcon Flex. The industry is moving to this idea of a platform or a one-stop shop for all cybersecurity needs with the same company. Palo Alto is putting its effort behind a version of this, calling it platformization. CrowdStrike’s Flex subscription model allows customers to consolidate their security solutions through a flexible licensing agreement. Total Flex customers now exceed 1,000 thanks to the 220 new customers added in the quarter. Those are leading to some decently sized deals with the average Flex customer representing more than $1 million of ending ARR. The Falcon Flex model allows customers to achieve a low total cost of ownership while optimizing security by letting them swap one security module for another as needed. Not only are more customers signing up to the Flex model, they are also “re-flexing” or re-upping to more security modules and consolation at a high rate, providing management with conviction in their net-new ARR outlook. On artificial intelligence, companies and organizations of all sizes will depend on CrowdStrike’s best-in-class solutions even more. Bad actors are growing more sophisticated by the day, and advances in AI are introducing new threats that enterprises must defend against. “Model creation and AI development happen in the cloud and in the data center. AI adoption happens at the endpoint on the computing device itself. And AI access happens by users with human and increasingly non-human machine identities. CrowdStrike secures each of these attack surfaces,” CEO and founder George Kurtz explained on the earnings call. CrowdStrike also announced this evening the acquisition of a company called Onum, which it believes will improve its next-gen SIEM capabilities. SIEM stands for security information and event management. Guidance For full-year fiscal 2026, CrowdStrike management left its revenue outlook essentially unchanged, nudging up the low end by $5 million. It now sees full-year revenue in the range of roughly $4.75 billion to $4.81 billion. However, the company raised its adjusted EPS outlook to a range of $3.60 to $3.72 from its prior outlook of $3.44 to $3.56. The new outlook is above the consensus of $3.52. For its 2026 fiscal third quarter, the current quarter going on right now, CrowdStrike’s revenue guidance at the midpoint was $1.213 billion, a bit below the $1.228 billion consensus. But adjusted earnings per share are expected to be 93 cents to 95 cents, which is a beat versus the consensus of 91 cents. (Jim Cramer’s Charitable Trust is long CRWD, PANW. 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. 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