Guggenheim reaffirms Neutral on CrowdStrike stock, highlights risks despite Falcon Flex success

EditorAhmed Abdulazez Abdulkadir
Published 2024-11-27, 05:38 a/m
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CRWD
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On Wednesday, Guggenheim maintained its Neutral rating on CrowdStrike Holdings (NASDAQ:CRWD), following the company's financial results for the third quarter of fiscal year 2025.

CrowdStrike's earnings report revealed a performance that surpassed consensus estimates for the third quarter and provided guidance for fourth-quarter revenue that was slightly above expectations. However, the company's operating income and earnings per share (EPS) were reported to be in line to slightly below what analysts had predicted.

The report from Guggenheim highlighted that CrowdStrike's new annual recurring revenue (ARR) saw a 27% decrease, which was more significant than the 15% decline anticipated in Guggenheim's Plausible scenario. Despite this drop in ARR, the company's dollar-based gross retention remained stable at historical levels of 97.5%, countering assumptions of a temporary decline following the system outage on July 19.

Guggenheim analysts expect that CrowdStrike will meet its fourth-quarter guidance without difficulty, although they note that ARR could present some risk. They also point out that both revenue and ARR could pose risks for the fiscal year 2026.

The firm acknowledges the potential for confusion regarding the divergence between ARR and revenue, especially if CrowdStrike makes cash payments to customers as a result of legal suits related to the July outage. Such payments are expected to be deducted from revenue.

The analyst commentary also mentioned that CrowdStrike's stock closed above the price level before the July 19 outage, although it experienced a slight dip in after-hours trading. Guggenheim praised CrowdStrike's execution and transparency, particularly the use of Falcon Flex (NASDAQ:FLEX) within its Customer Commitment Program. Nevertheless, the firm cautions that risks remain, especially given the company's valuation at 21 times enterprise value to recurring revenue (EV/Rec Rev).

In summary, Guggenheim's stance on CrowdStrike remains unchanged, with an emphasis on the company's solid gross retention and successful customer engagement strategies, while also considering the potential risks ahead.

In other recent news, CrowdStrike Holdings has been making notable strides in the cybersecurity market. The company's third-quarter results exceeded expectations, with a 29% increase in revenue from the previous year, surpassing the $1 billion mark. The Annual Recurring Revenue (ARR) also saw a significant rise, reaching $4.02 billion, marking a 27% growth from the previous year.

Analyst firms including Evercore ISI, Cantor Fitzgerald, BMO (TSX:BMO) Capital Markets, DA Davidson, and Mizuho (NYSE:MFG) Securities have maintained positive ratings on CrowdStrike, with price targets ranging from $370 to $410.

Despite facing challenges such as a service disruption in July and customer churn concerns, CrowdStrike's broader platform adoption, driven by the Falcon Flex offering, is expected to contribute to the company's sustained success. The company's management aims to accelerate net new ARR in the second half of fiscal year 2026 and has set a goal to reach $10 billion in ARR by fiscal year 2031.

InvestingPro Insights

CrowdStrike's financial performance and market position are further illuminated by recent data from InvestingPro. The company's revenue growth remains robust, with a 33.07% increase over the last twelve months as of Q2 2025, aligning with the strong execution noted in Guggenheim's analysis. This growth is complemented by a healthy gross profit margin of 75.37%, underscoring CrowdStrike's ability to maintain profitability while expanding its market share.

InvestingPro Tips highlight that CrowdStrike is trading at a high earnings multiple, which corroborates Guggenheim's caution regarding the company's valuation. The Price to Earnings ratio stands at a lofty 515.09, reflecting investor optimism about future growth prospects. Additionally, CrowdStrike has demonstrated a strong return over the last year, with a 73.42% price total return, indicating substantial market confidence in the company's trajectory despite the challenges mentioned in the article.

For investors seeking a deeper understanding of CrowdStrike's financial health and market position, InvestingPro offers 16 additional tips, providing a comprehensive view of the company's strengths and potential risks.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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