What happened
Wall Street sure is rocking the boat on cybersecurity operator CrowdStrike (CRWD 3.86%) this week! With earnings in the offing, analysts at Morgan Stanley decided to cut their price target on CrowdStrike yesterday, costing CrowdStrike about 3.7% of its market capitalization as investors got spooked. Today, CrowdStrike's moving the other way, as a bullish note from Needham sends the stock back up about 2% through 1 p.m. ET.
So which way is it? Is CrowdStrike going up or down?
NASDAQ: CRWD
Key Data Points
So what
In yesterday's note, covered by Street Insider, Morgan Stanley took CrowdStrike to task for cutting its forecast last quarter, and warned that another cut could come when CrowdStrike reports earnings tomorrow. "Consensus estimates for 2H/CY24 rebound appear high in light of a more difficult demand environment," said Morgan Stanley analyst Hamza Fodderwala, citing an industry slowdown and weak free cash flow. The analyst then cut the stock's price target to $167 (which is still more than what CrowdStrike costs today).
This morning, though, analysts at Needham rebutted that presumption, predicting not only will CrowdStrike not have bad news tomorrow, but it will report a "solid beat." Industry may have slowed down on cybersecurity spending, says Needham, but The Fly quotes Needham saying this trend has already stabilized and channel checks now look good. Furthermore, CrowdStrike is making good use of artificial intelligence (AI) to bolster its cybersecurity effectiveness -- and everyone knows how popular anything with the letters "AI" in it is these days.
Now what
So who's right in this debate? You won't have to wait long to find out. CrowdStrike is set to report earnings after close of trading tomorrow, Aug. 30.
Needham's comments this morning sound pretty bullish for the stock, but a word of warning: Analyst estimates for tomorrow were already pretty bullish. On average, Street estimates show CrowdStrike growing its revenue 35% to more than $724 million in its fiscal second quarter. And CrowdStrike will have to do even better to meet earnings expectations, which call for nearly 56% growth to $0.56 per share. And as regards guidance, beware: If CrowdStrike says its earnings will grow any slower than 55% for the year as a whole, investors are bound to be disappointed.
Long story short, CrowdStrike has some pretty high hurdles it needs to clear tomorrow if it wants to keep investors happy. When it comes to playing the expectations game, the bigger those expectations are, the harder a stock can fall (if it misses them).
