Stock Story -
What Happened: Shares of cybersecurity company CrowdStrike (NASDAQ:CRWD) jumped 5.4% in the afternoon session after Morgan Stanley (NYSE:MS) analyst Hamza Fodderwala upgraded the stock's rating from Equal-Weight (Hold) to Overweight (Buy) and raised the price target from $203 to $304. The price target implied a potential 10% upside from where shares traded when the upgrade was announced. Fodderwala noted, "We see an improving demand outlook for CRWD as accelerating cyberattacks, multiple new products and [generative AI] tailwinds drive estimates upside."
This upgrade aligns with a period marked by an uptick in geopolitical conflicts, which often result in attacks aimed at cyber assets. As a result, these trends could generate more demand for cybersecurity vendors as businesses must keep their networks and devices safe from threat actors.
Is now the time to buy CrowdStrike? Find out by reading the original article on StockStory.
What is the market telling us: CrowdStrike's shares are quite volatile and over the last year have had 13 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 7 months ago, when the stockdropped 13.1% on the news that the company reported first-quarter results that exceeded analysts' expectations for revenue, annual recurring revenue (ARR), free cash flow, and earnings per share. Gross margin also improved. However, there was a notable setback in terms of billings, which serves as a crucial leading indicator for near-term sales growth. Billings fell 12% below expectations. Management provided more color on the billings outlook during the earnings call noting that "given the timing of expenses, billing seasonality, and the midyear ESPP purchase, the second quarter is generally our lowest cash flow generation quarter of the year. This year we expect to see more pronounced seasonality."
Additionally, CFO Burt Podbere pointed out that the company continued to observe "increased deal scrutiny and longer than typical sales cycles." Despite these, guidance was impressive. Revenue, operating income and earnings per share guidance for the next quarter and full year were ahead of Consensus, and the company raised the full year revenue and earnings per share outlook. CrowdStrike also Introduced Charlotte AI, a new generative AI security analyst. Overall, it was a strong quarter although a billings miss is never a good sign for a fast-growing SaaS company.
Additionally, the markets were either expecting more (there is whisper that net new ARR, which was down year on year, was expected to be better), or the results were already priced in.
CrowdStrike is up 11.6% since the beginning of the year. Investors who bought $1,000 worth of CrowdStrike's shares at the IPO in June 2019 would now be looking at an investment worth $4,751.
