CrowdStrike (CRWD +6.11%) has been seeing its annual recurring revenue (ARR) growth continually decelerate over the past several quarters, but the stock got a lift after the company predicted this important metric would begin to accelerate in the second half. ARR is the annualized value of its high gross-margin subscription contracts and doesn't include its low-margin, less predictable professional services revenue.
Let's take a closer look at the cybersecurity company's results and see if now is the time to jump into the stock.
NASDAQ: CRWD
Key Data Points
ARR in focus
Despite the stock's strong rebound following its well-publicized IT outage last year, CrowdStrike has been seeing its ARR growth continue to decelerate in the quarters following the incident.
This continued in the fiscal 2026 second quarter, with the company reporting ARR growth of 20%, down from 22% growth in Q1. An additional $221.1 million was net new ARR in the period.
Revenue, meanwhile, rose 21% to $1.17 billion, which was just ahead of the $1.15 billion consensus as compiled by Factset. Subscription revenue climbed 20% to $1.10 billion.
Below is how CrowdStrike's year-over-year revenue and ARR growth have been trending in the past two years:
|
Metric |
Q3 FY24 |
Q4 FY24 |
Q1 FY25 |
Q2 FY25 |
Q3 FY25 |
Q4 FY25 |
Q1 FY26 |
Q2 FY26 |
|---|---|---|---|---|---|---|---|---|
|
Revenue growth |
35% |
33% |
33% |
32% |
29% |
25% |
20% |
21% |
|
Subscription revenue growth |
34% |
33% |
34% |
33% |
31% |
27% |
20% |
20% |
|
ARR growth |
35% |
34% |
33% |
32% |
27% |
23% |
22% |
20% |
Data source: CrowdStrike earnings reports. CrowdStrike's fiscal year ends Jan. 31.
However, the company said it expects to see ARR growth of at least 40% in the back half of fiscal 2026. This is being driven by the strength in its next-gen artificial intelligence (AI) solutions and its Falcon Flex licensing model, which gives customers access to its entire cybersecurity portfolio of products but lets them pay for and deploy modules only when needed. Falcon Flex helps speed up the sales process by letting customers try out and more quickly adopt additional CrowdStrike modules.
The company said it now has more than 1,000 Falcon Flex customers, while each customer has an average ARR of more than $1 million. It also noted that as many customers burn through their credits, more than 100 have "re-flexed," entering new contracts for more Flex credits.
Falcon Flex is also helping introduce customers to more of CrowdStrike's next-gen security modules. Combined, its next-gen modules had an ARR of nearly $1.6 billion at quarter's end. Its next-gen SIEM (security information and event management) ARR nearly doubled to $430 million, while Cloud Security ARR jumped 35% to more than $700 million, and next-gen Identity ARR climbed 21% to $435 million. The company also announced that it will acquire data pipeline platform Onum, which it says complements its next-gen SIEM offering.
CrowdStrike's adjusted earnings per share (EPS), meanwhile, rose 6% to $0.93. That came in well ahead of the $0.83 per share analyst consensus.
The company continues to generate strong cash flow with operating cash flow of $332.8 million and free cash flow of $283.6 million. It ended the period with a record $4.97 billion in net cash and short-term investments and $745 million in debt.
Looking ahead, CrowdStrike slightly boosted its fiscal 2026 revenue guidance to between $4.75 billion and $4.81 billion. Meanwhile, it increased its adjusted EPS guidance to a range of $3.60 to $3.72, up from a prior outlook of between $3.44 and $3.56.
For its fiscal Q3, it forecast adjusted EPS of $0.93 to $0.95 on revenue of $1.21 billion to $1.22 billion. The revenue guidance was just short of the $1.23 billion analysts were anticipating.
Image source: Getty Images.
Should investors buy the stock?
CrowdStrike's earnings report was a mixed bag. Its small revenue beat was due to its low-margin professional service business, while its ARR continued to decelerate. Meanwhile, its Q3 revenue guidance fell short of analysts' expectations.
However, the company continues to see solid momentum in next-gen cybersecurity offerings, and its flexible payment program appears to be driving the adoption of these modules. The reacceleration of ARR to around 40% would be a huge positive if it plays out the way the company is envisioning.
Looking at valuation, CrowdStrike trades at a forward price-to-sales (P/S) multiple of just under 22 times analysts' estimates for the current fiscal year (ending Jan. 2026). Given its revenue growth rate, that's very expensive, and it would really need to be growing at a much faster rate to justify that type of valuation.
I think CrowdStrike's commentary sets the company up well for the rest of the year and going into the next. Its visibility should be pretty solid with the way it is seeing customers "re-flex." However, these positives are already reflected in the stock's valuation, and as such, I'd stay on the sidelines for now.
