After the market closed on Nov. 29, cybersecurity specialist CrowdStrike Holdings (CRWD -1.76%) reported financial results for the third quarter of its fiscal 2023. The stock was immediately pummeled. 

Here's what CrowdStrike reported, what Wall Street didn't like, and whether investors should ignore Wall Street's concerns and buy CrowdStrike stock anyway.

What CrowdStrike reported

In Q3, CrowdStrike generated revenue of $581 million, surpassing guidance of $576 million at the high end of management's guidance range. Moreover, the company's revenue was up 58% year over year, which looks stellar on the surface.

However, that's the slowest quarterly revenue growth rate that CrowdStrike has reported as a public company. Consider that the stock has routinely traded at a premium valuation -- its price-to-sales ratio has been over 20 for much of 2022. But as its growth rate has come down, so too has the valuation that investors are willing to pay, which is partly why the stock is down. 

Still, CrowdStrike overdelivered on revenue in Q3. And it did the same on the bottom line as well. Management gave adjusted profitability guidance -- not according to generally accepted accounting principles (GAAP). Q3 non-GAAP income from operations of $89.7 million was up 77% year over year, surpassing guidance of $77.7 million at best. And non-GAAP net income of $96.1 million was up 134% year over year, besting management's most optimistic guidance of $78 million.

Putting it all together, CrowdStrike's Q3 financial results were better than promised on both the top and bottom lines. 

What Wall Street didn't like

For analysts, annual recurring revenue (ARR) stood out as the biggest problem from CrowdStrike's Q3 results. 

CrowdStrike often signs multiyear contracts with its customers to provide various cybersecurity services, giving it recurring revenue. For this reason, ARR is an important metric for investors to watch. The company ended Q3 with ARR of $2.34 billion, up 54% year over year. But that wasn't good enough for analysts.

It's a fair criticism. Since ARR is a recurring metric, looking at year-over-year growth doesn't tell the whole story. Investors should also look at trends from quarter to quarter. At the end of the second quarter, CrowdStrike had ARR of $2.14 billion. Therefore, it only added $200 million in net ARR during Q3.

For perspective, CrowdStrike had about $240 million in net ARR during Q2. But here's the thing: The company traditionally has some seasonality with its business, and it generally expects Q3 results to exceed Q2 results in this category.

As stated in CrowdStrike's annual report with the Securities and Exchange Commission (SEC), "We expect these seasonal variations to become more pronounced in future periods, with net new ARR generation being greater in the second half of the year, particularly in the fourth quarter, as compared to the first half of the year."

And speaking of the fourth quarter, CrowdStrike CFO Burt Podbere said, "We believe it is prudent to assume that Q4 net new ARR will be below Q3."

In other words, CrowdStrike isn't landing the deals that it should be this time of year. And this has the market on edge, as evidenced by the stock's big drop.

Is CrowdStrike stock a contrarian buy?

I want to be clear: As an unprofitable company (on a GAAP basis) and a stock with a (still) lofty valuation, CrowdStrike isn't for every investor. Today's shareholders are assuming that the company can eventually turn the corner on profitability and that it can maintain enough growth to warrant its premium price tag. By contrast, many investors prefer companies that are already profitable and reasonably valued.

However, CrowdStrike is on much firmer ground than the net ARR metric would have you believe, which may mean the market is being overly negative about its Q3 results.

First, we're seeing a slowdown in CrowdStrike deals, but we're not seeing customer attrition. As management pointed out, its gross retention is sitting near record levels above 98%. That's huge.

Second, CrowdStrike is still adding new customers at an impressive rate. In Q3, it added 1,460 net new subscription customers, translating to 7.4% quarter-over-quarter growth. 

Finally, CrowdStrike ended Q3 with record remaining performance obligations (RPO) of $2.8 billion, up from $2.5 billion in Q2. Importantly, only 64% of its RPO is expected to be recognized over the next year, compared to 65% at the end of Q2. In other words, contracts appear to be getting longer, which is good. 

Cybersecurity is a large, growing industry, and the need for good providers isn't going away. For this reason alone, CrowdStrike is worth considering. Moreover, it appears Wall Street is overreacting to the company's Q3 financial results, which could make this a timely buying opportunity for investors who are comfortable with the aforementioned risks.