CrowdStrike (CRWD +0.08%) saw its annual recurring revenue (ARR) growth reaccelerate when it reported its fiscal Q3 results, breaking a trend of declining ARR over the past two years. ARR is the annualized value of its high-gross-margin subscription contracts and does not include its professional services revenue.
This is a good sign for the cybersecurity company, but is it a reason to buy the stock heading into next year? Let's find out.
NASDAQ: CRWD
Key Data Points
Improving growth
CrowdStrike turned in a strong quarter, as net new ARR soared 73% to $265 million and total ARR climbed 23% to $4.92 billion. Revenue, meanwhile, climbed 22% to $1.23 billion, which was just ahead of the $1.21 billion consensus as compiled by Factset. Subscription revenue jumped 21% to $1.17 billion.
Below is a table of how CrowdStrike's year-over-year revenue and ARR growth have been trending in recent quarters.
|
Metric |
Q3 FY24 |
Q4 FY24 |
Q1 FY25 |
Q2 FY25 |
Q3 FY25 |
Q4 FY25 |
Q1 FY26 |
Q2 FY26 |
Q3 FY26 |
|---|---|---|---|---|---|---|---|---|---|
|
Revenue growth |
35% |
33% |
33% |
32% |
29% |
25% |
20% |
21% |
22% |
|
Subscription revenue growth |
34% |
33% |
34% |
33% |
31% |
27% |
20% |
20% |
21% |
|
ARR growth |
35% |
34% |
33% |
32% |
27% |
23% |
22% |
20% |
23% |
Data source: CrowdStrike earnings reports. CrowdStrike's fiscal year ends Jan. 31.
The company credited the strong growth to its Falcon Flex licensing model, which lets customers access its complete cybersecurity product portfolio but allows them to deploy and pay for modules only when they are needed. This is leading to more customers trying its next-gen artificial intelligence (AI) solutions.
Customers that have adopted Falcon Flex ended the quarter with $1.35 billion in ARR, more than tripling year over year. Meanwhile, the number of customers that "re-flexed," or entered into new contracts for more Flex credits, more than doubled sequentially to over 200 customers, including 10 that more than doubled their original credit amounts.
The company said it was a record quarter of ARR for its next-gen SIEM (security information and event management), as well as for Cloud Security ARR. Meanwhile, it said 49% of its customers now use six or more of its modules, while 24% are using eight or more.
CrowdStrike's adjusted earnings per share (EPS) soared 26% to $0.96. That was just ahead of the $0.94-per-share analyst consensus. The company continues to produce solid cash flow with operating cash flow of $397.5 million and free cash flow of $295.9 million. It finished the quarter with $4.9 billion in cash and short-term investments and $745 million in debt.
Looking ahead, CrowdStrike raised its fiscal 2026 revenue guidance slightly to between $4.8 billion and $4.81 billion. It also increased the low end of its adjusted EPS guidance to a range of $3.70 to $3.72, up from a previous forecast of between $3.60 and $3.72.
For its fiscal fourth quarter, the company guided for adjusted EPS of $1.09 to $1.11 on revenue of $1.29 billion to $1.3 billion. The revenue guidance was in line with the $1.294 billion consensus.
Image source: Getty Images.
Is now the time to buy the stock?
After seeing its ARR growth consistently decelerate following its well-publicized IT outage last year, CrowdStrike was able to finally reverse the tide and reaccelerate its ARR in the third quarter.
The company continues to see strong momentum in its next-gen cybersecurity offerings, helped by its Falcon Flex flexible payment program. Meanwhile, it said its new ARR growth for the second half would be 50%, versus an earlier expectation of 40%, showing that it expects its momentum to continue.
Turning to valuation, CrowdStrike shares trade at a forward price-to-sales (P/S) multiple of about 22.5 times analysts' estimates for the next fiscal year (ending January 2027). Even with ARR growth starting to accelerate, that's a big multiple given its current rate of growth.
As such, I'd prefer to stay on the sidelines, despite the good progress the company is beginning to make.
