CrowdStrike Holdings (CRWD) reduced its fiscal 2025 guidance across various metrics on Wednesday, a move prompted by a global IT outage on July 19 caused by a flawed software update affecting corporate clients. Despite the adjustment, CrowdStrike’s stock saw an uptick in after-hours trading, buoyed by stronger-than-expected financial results for the July-ended quarter.
Quarterly Earnings Performance
CrowdStrike reported a 40% increase in adjusted earnings for the second quarter, reaching $1.04 per share. Revenue, which included contributions from recent acquisitions, rose 32% to $963.9 million. FactSet analysts had forecast earnings of 97 cents per share and revenue of $958.3 million.
Focus on Annual Recurring Revenue
Wall Street places significant emphasis on annual recurring revenue (ARR), a crucial metric linked to subscription service growth. In light of the IT outage, analysts anticipated slower growth for “net new” ARR due to delays in contract signings and expectations of price discounts during contract renewals to compensate for business disruptions.
Revised Fiscal 2025 Guidance
CrowdStrike’s negotiations over pricing concessions are expected to extend through 2025 and possibly beyond. For the second quarter, total ARR grew 32% to $3.86 billion, surpassing the $3.85 billion predicted by analysts. New ARR was reported at $218 million, exceeding the consensus estimate of $195.5 million.
For the upcoming October quarter, CrowdStrike projects earnings per share (EPS) in the range of 80 to 81 cents and revenue between $979.2 million and $984.7 million, while analysts had anticipated $1.01 billion in revenue. The company’s forecast for fiscal 2025 includes EPS of $3.61 to $3.65 and revenue between $3.89 billion and $3.9 billion. Previously, the consensus estimate for fiscal 2025 was EPS of $3.90 on revenue of $3.955 billion.
Impact of Customer Commitment Package
In its earnings release, CrowdStrike noted that the revised revenue guidance for fiscal 2025 accounts for an estimated $30 million subscription revenue impact per remaining fiscal quarter due to incentives related to its customer commitment package. Additionally, the company expects a high-single-digit million-dollar impact on professional services revenue in the latter half of fiscal 2025 due to these incentives.
Stock Performance and Market Reaction
CrowdStrike’s stock rose more than 1% to $269.21 in extended trading. Before the earnings report, the stock had gained 6% in 2024, a decline from a 56% increase observed on July 9, prior to the IT outage.
RBC Capital analyst Matthew Hedberg commented, “Management noted the quarter demonstrated the resilience of the business and platform.”
Competitive Landscape
CrowdStrike competes in the “endpoint” security market with rivals such as Palo Alto Networks (PANW), SentinelOne (S), and Microsoft (MSFT). Endpoint security tools are designed to detect malware on devices accessing corporate networks. Additionally, CrowdStrike is developing an extended detection and response (XDR) platform, which encompasses threat detection across endpoints, web/email gateways, web application firewalls, and cloud business workloads.
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