Earnings propel Crowdstrike, cybersecurity sector, to new highs

Key Points

• Crowdstrike's Q3 earnings report surpassed expectations, triggering a gap-up to new highs.
• Analysts forecast Crowdstrike's fiscal 2024 earnings to increase by 91%.
• Other industry leaders include Zscaler and Palo Alto Networks, as cybersecurity spending is expected to grow. 

Heading into its third-quarter earnings report, cybersecurity specialist Crowdstrike Holdings Inc. NASDAQ: CRWD was already on a roll, more than doubling in price between January 1 and November 27. 

The stock gapped up 10.40% on November 28 after reporting earnings and revenue that topped analysts’ estimates. You can see the results on MarketBeat’s Crowdstrike earnings page. 

Net income in the third quarter increased to 82 cents per share, up 105% from a year ago.

Revenue, including organic growth and acquisitions, increased by 35% to $786 million. 

Wall Street was eyeing earnings of 74 cents per share on $777 million in revenue. 

Wall Street cheers Crowdstrike's recurring revenue

Crowdstrike, which bills on a subscription basis, reported net new annual recurring revenue of $221.7 million, a 48% year-over-year increase. That’s a key metric for analysts and investors, as it indicates stable cash flows.

Consistent monthly income makes it easier for a company, and its investors, to predict the inflows for operating the business and launching new projects. 

Increasing recurring revenue also indicates a growing customer base and sustained demand, signaling the potential for longer-term profitability.

In the current quarter, the company is forecasting revenue in a range between $836 million and $840 million in revenue, with earnings of 81 cents to 82 cents a share. 

It was that forecast that sent the stock scurrying higher, as the FactSet consensus had called for for $837 million in revenue and 78 cents per share in net income. The midpoint of Crowdstrike’s own estimate is higher than Wall Street’s previous estimate. 

Partnering with Dell's enterprise sales channel

Among highlights in the quarter, Crowdstrike announced a strategic alliance with Dell Technologies Inc. NYSE: DELL to help organizations prevent, detect and respond to cyber threats. Crowdstrike’s Falcon platform, a cloud-based malware attack prevention technology, will be enabled with the purchase of any Dell PC sold through enterprise channels. 

The Crowdstrike chart shows the stock is extended beyond recent buy opportunities when it tagged moving average lines and rebounded to fresh gains. The stock was trading near its 10-day average as recently as November 28, before shooting higher after the earnings report. 

Cybersecurity spending is expected to continue rising. Tech research firm Gartner forecasts that total global security and risk management spending will increase by 14% in 2024, while cloud security specifically is seen growing by 24.7%.

As you might imagine, the cybersecurity industry always needs to stay several steps ahead of potential threats. In light of that need, CrowdStrike is building an even more robust and wide-ranging threat-detection system called XDR, for extended detection and response.

Significant EPS increase expected 

Analysts expect the company to earn $2.95 per share in the current year, which is fiscal 2024. That would be an increase of 91%, which is certain to catch investors’ attention.

Next year, Wall Street expects a gain of 25% to $3.69 per share. 

Crowdstrike’s report also gave investors more reason to cheer the cybersecurity segment of technology stocks. As a group, this subindustry is up 3.36% for the week and up 16.80% for November. 

Industry leaders also include Zscaler Inc. NASDAQ: ZS, which reported quarterly results the day before Crowdstrike, also gapping up on a better-than-expected report. 

Zscaler stock posted a November gain of 24%, and like Crowdstrike, is currently extended from a buy range.

Rival Palo Alto Networks also industry leader

Another cybersecurity leader is S&P 500 component Palo Alto Networks Inc. NASDAQ: PANW, which rose in tandem with Zscaler and Crowdstrike’s news. 

Palo Alto Networks’ Cortex XDR platform, Cortex, competes with Crowdstrike’s Falcon. 

It’s a good sign when you see several stocks from a broad industry increasing at the same time. This kind of simultaneous growth suggests broader economic health, and is generally a less risky proposition than a one-off stock that’s performing well, while the broad industry lags. 

Crowdstrike analyst forecasts show a consensus rating of “moderate buy,” with numerous analysts boosting their price targets following the earnings report.