CrowdStrike Heads Into Earnings With High Expectations and a High Valuation

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

Key Points

• CrowdStrike is expected to report third-quarter sales growth of 20% to $1.2 billion and annual recurring revenue rising 22% to $4.9 billion.
• The company’s stock fell 36% after a July 2024 outage affected 8.5 million devices, but has since recovered over 130%.
• CrowdStrike’s valuation is high, trading at 77 times projected free-cash-flow-per-share, compared to 40 for its industry group.

Cybersecurity standout, CrowdStrike Holdings, reports its third-quarter earnings amid expectations for double-digit sales growth. Concerns about the stock’s high valuation linger.

Wall Street analysts are expecting third-quarter sales growth of 20% from last year to $1.2 billion and adjusted earnings-per-share of 94 cents, roughly in line with the same quarter in fiscal year 2025. CrowdStrike reports results on Tuesday afternoon.

These year-over-year comparisons aren’t as helpful as they usually are. In this fiscal year, which began in February, CrowdStrike made a big change in how it calculates adjusted earnings per share, which significantly depressed the measurement. The company also introduced a shift in how customers can pay that leads to more long-term sales, but can also delay revenue recognition, weighing on near-term sales growth.

Not subject to these vagaries is a metric analysts typically use for subscription software companies: annual recurring revenue. ARR is seen rising 22% from last year to $4.9 billion.

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 .

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.

This massive rally has pushed the valuation well beyond normal ranges, even for fast-growing software companies. CrowdStrike trades at 77 times projected free-cash-flow-per-share for the next 12 months. That figure is 40 for the S&P 500 Software and Services Industry Group.

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