After the market close on Wednesday, CrowdStrike (CRWD -3.09%) reported the results of its fiscal 2024 first quarter (ended April 30), and by all accounts the results were a mixed bag.
While the cloud-based cybersecurity specialist generated record results in a number of important financial metrics, its outlook left something to be desired. While the company raised its full-year guidance, Wall Street apparently wanted more. Investors responded with a sell-off that drove the stock down as much as 12% in after-hours trading.
Let's look at what the results reveal and what it means for investors.
Image source: Getty Images.
Like a broken record
By most accounts, results were far better than investors had anticipated. The company generated record revenue of $693 million, up 42% year over year, while subscription revenue of $651 million also grew 42%. Subscription gross margins ticked 100 basis point higher, resulting in a record subscription gross margin of 78%.
Giving additional weight to its top-line growth, CrowdStrike added $174.2 billion to its annual recurring revenue (ARR), bringing the total to $2.73 billion, up 42% year over year. Since ARR is a forward-looking indicator of future sales, this suggests that the company's current growth rate could conceivably continue.
These factors helped CrowdStrike swing from a loss to just above breakeven -- hitting positive profitability for the first time in the company's history. On an adjusted basis, earnings per share (EPS) of $0.57 climbed 84% year over year, also setting a new record.
To put the results into the context of Wall Street's expectations, analysts' consensus estimates were calling for revenue of $677.4 million and adjusted EPS of $0.51, so CrowdStrike cleared both bars with room to spare.
It also established new benchmarks for operating cash flow and free cash flow, which hit $301 million and $227 million, respectively, each a new record.
There were other reasons to be bullish. Subscription customers climbed to 23,019, up 41% year over year, while those adopting five or more, six or more, or seven or more modules grew to 62%, 40%, and 23% of subscription customers, respectively. This helps to illustrate the growing adoption of additional solutions by existing customers.
CrowdStrike's expanding ecosystem of services continues to push out the upper limits of the company's opportunity. Management estimates that its total addressable market -- when factoring in planned new product offerings -- will grow from $76 billion currently to $158 billion by 2026. While we generally take those estimates with a grain of salt, it does suggest that the company's opportunity continues to expand.
That all seems like good news. So why is the stock down?
The news certainly seems good, but investors are already looking ahead -- and what they saw gave some pause.
CrowdStrike issued quarterly guidance, while increasing its forecast for the full fiscal year. Investors normally view that as a positive development, but the change simply wasn't enough to move the needle. The company is now expecting fiscal 2024 second-quarter revenue of $722 million, representing growth of 35% year over year at the midpoint of its guidance. CrowdStrike is also expecting full-year revenue of $3 billion, representing growth of about 35%.
While that's certainly respectable -- particularly given the ongoing economic headwinds -- it marks a significant deceleration from the 42% growth the company just delivered. And it would be the slowest growth rate since CrowdStrike went public. Furthermore, the guidance was largely in line with Wall Street's expectations for revenue of $3 billion, so investors were likely hoping for more.
It's also worth noting that going into its earnings report, the stock had surged 52% so far in 2023. With that as a backdrop, it isn't surprising that investors with a short-term view might indulge in a little profit-taking, particularly given CrowdStrike's slowing growth. And before its report, the stock was selling for 10 times next year's sales, which some might view as too pricey, particularly given its expectations for slowing sales.
For long-term investors, however, the view is decidedly different. CrowdStrike continues to grow its customer base, while expanding sales to its existing customers. Revenue continues to climb (albeit at a lower rate), and the company has swung to profitability while continuing to generate strong cash flow.
When taken together, the results paint the picture of a company making steady progress on the fronts that matter, pouring the foundation for a bright future. It also shows why CrowdStrike stock remains a buy.
