Buying CrowdStrike as Strong Quarter Indicates Acceleration
Sticking with this long-term price target for the cybersecurity giant.
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On Wednesday evening, cybersecurity giant and long-time Sarge-folio fave CrowdStrike Holdings (CRWD) followed the firm’s key competitor Palo Alto Networks (PANW) by a day and released the firm’s quarterly financial results.
For the three-month period ended April 30 (the firm’s fiscal Q1), CrowdStrike posted an adjusted EPS of $1.10 (GAAP EPS: $0.11) on revenue of $1.386 billion. These top- and bottom-line numbers all beat Wall Street’s expectations while those sales were good for year-over-year growth of 26.4%.
Like with Palo Alto, the huge adjustment was made primarily for the purpose of stock-based compensation, which I do have a problem with for mature companies that make that adjustment every quarter. Unlike Palo Alto, CrowdStrike was still profitable even on a GAAP basis. Still, seriously, even though I am a fan of CRWD, if you do it every quarter and you did not go public nine months ago, it’s an ordinary operating expense. Stop pretending.
For the quarter, CrowdStrike achieved a record Q1 net new annual recurring revenue (ARR) of $256 million (+32%). The firm also announced a four for one stock split effective July 1st. Founder and CEO George Kurtz commented in the press release:
“In Q1, the worlds of cybersecurity and frontier AI collided: this was the Mythos moment. CrowdStrike is AI security infrastructure, critical to successful AI adoption. Our record Q1 net new ARR, QuiltWorks coalition, and AIDR innovation are indicators of our own AI inflection point. We’re seeing platform adoption from existing customers, new logo lands, and increased partner engagement, each giving me the conviction to significantly raise our FY27 net new ARR guidance.”
Operations
As CrowdStrike grew revenue by 26.4% to $1.386 billion, the cost of that revenue grew 18.9% to $342.3M million. That left a gross profit of $1.043 billion (+27.8%) on a gross margin of 79%, up from 77.6%. GAAP operating expenses printed at $1.074 billion (+15%), leaving a GAAP operating income/loss of -$30.6 million (up from -$118.7 million). On an adjusted basis, operating income increased 62% to $325.7 million as the firm’s adjusted operating margin improved from 18.2% to 23.5%.
After accounting for interest, other income and expenses and taxes, GAAP net income attributable to shareholders landed at $27.7 million (up from -$104.3 million). This works out to a fully diluted GAAP EPS of $0.11, up from the year-ago comp of -$0.42. After adjustments, net income increased 53.4% to $253.7 million. That number works out to an adjusted fully diluted EPS of $1.10 versus the year ago $0.73.
Guidance
For the current quarter, CrowdStrike sees revenue of $1.436 billion to $1.442 billion and an adjusted EPS of $1.16 to $1.17. This guidance is slightly better than the $1.16 on $1.43 billion that Wall Street was looking for. ARR is seen at $5.7926 billion to $5.7946 billion.
For the full fiscal year, CrowdStrike is projecting revenue of $5.91 billion to $5.96 billion and an adjusted EPS of $4.88 to $4.96. These numbers were well above the $4.85 on $5.91 billion that Wall Street had in mind and should be seen, in my opinion, as decisive positives. ARR is seen at $6.5317 billion to $6.5555 billion.
Fundamentals
For the period reported, CrowdStrike generated operating cash flow of $590.9 million. Out of that number came $97.6 million in traditional capex spending and another $22.6 million in capitalized software development costs. This left free cash flow of $468.5 million (+67.7%). Out of this number, the firm repurchased $175.6 million worth of common stock for its corporate treasury. The firm does not pay cash dividends to shareholders.
Turning to the balance sheet, the firm ended the quarter with a cash position of $4.553 billion and current assets of $6.302 billion. Current liabilities run at $4.116 billion. In that number is no short-term debt, but deferred revenue of $3.37 billion, which is not a true financial obligation. That puts the firm’s adjusted current ratio at a beefy 8.45.
Total assets amount to $11.27 billion. Of that number, just 22.7% is labeled as either goodwill or other intangibles. This is well within modern industry norms. Total liabilities less equity comes to $6.595 billion. Of that, there is a long-term debt load of $745.9 million and another $1.352 billion in non-current deferred revenue. This is one strong balance sheet.
Opinion
I see this as a strong quarter for CrowdStrike. The business appears to be accelerating. Guidance is positive. Cash flows are positive. The balance sheet is immaculate. Needless to say, I added to my long position in the name overnight and expect to add further as the shares come in.
Readers will see that CRWD went sort of “parabolic” after breaking out of that inverse head-and-shoulders pattern of bullish reversal in early May. It’s time for the stock to come in a bit and traders are taking profits in the wake of a solid quarter. This is a chance for those invested in the name to grow our exposure in my opinion.
Relative strength is no longer technically overbought. The daily MACD looks to be on the verge of sending two separate bearish signals. Truth be told, though I added a little early on Thursday morning, I would be totally fine with a true head-and-shoulders pattern that puts the stock’s 50-day SMA to the test. My long-term target price stands at $950.
At the time of publication, Guilfoyle was long CRWD equity.
