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CrowdStrike Beat Earnings Expectations. Why the Stock Is Falling.

Dec 02, 2025 01:00:00 -0500 by Adam Levine | #Technology #Earnings Report

Crowdstrike signage on the floor of the New York Stock Exchange. (Michael Nagle/Bloomberg)

Key Points

Cybersecurity standout, CrowdStrike Holdings reported strong third-quarter earnings results Tuesday afternoon. Its shares were falling in premarket trading.

Adjusted earnings-per-share were 96 cents, ahead of Wall Street’s consensus estimate of 94 cents, up from 76 cents last year.  Revenue for the quarter reached $1.23 billion, above expectations of $1.21 billion, and up 22% on the year.

Fourth-quarter guidance for sales, adjusted EPS, and adjusted operating income also exceeded expectations. The company also raised its annual guidance for fiscal 2026.

The stock was down 2.1% in ahead of the open Wednesday after rising 2.5% during normal trading hours.

A closely watched forward-looking metric for subscription-based software is annual recurring revenue: how much is booked per year under current contracts. Crowdstrike’s ARR rose to $4.92 billion, just ahead of the Wall Street consensus, and up 23% year-over-year.

Crowdstrike’s profitability continues to improve with $296 million in free cash flow, equating to a 24% margin. FCF was up 36% from the same quarter last year.

All this comes as CrowdStrike emerges from under the shadow of a July 2024 incident in which the company pushed a bad software update to Windows customers, bringing down 8.5 million devices worldwide, according to Microsoft . The nature of CrowdStrike software and the bug meant that PCs and servers had to be manually fixed, a laborious process.

The day of the outage CrowdStrike shares were down 11% and the stock kept sliding into August, eventually shedding 36% of its value.

But the outage provided a lesson in crisis management. The company aggressively supported angry customers during the outage, and liberally handed out freebies to retain them. It introduced new procedures to make sure something like that never happened again. Even through all that, CrowdStrike software remains popular. Sales growth has been falling since 2019 when it peaked at over 100%, but now seems to have plateaued at around 20%, still a brisk pace.

There is still a potential liability outstanding, a lawsuit from one of the affected customers, Delta Air Lines .

So far, Crowdstrike has incurred $162 million in costs related to the outage, including $26 million this quarter.

As CrowdStrike worked its way out of the hole it dug, the stock began recovering and has soared over 130% since the August 2024 bottom.

The rally has pushed the valuation well beyond normal ranges, even for fast-growing software companies. CrowdStrike trades at 79 times projected free-cash-flow-per-share for the next 12 months. That figure is 29 for the S&P 500 Software and Services Industry Group.

Write to Adam Levine at adam.levine@barrons.com