With Wall Street focused on the impact of July's global IT outage on subscription growth, CrowdStrike Holdings on Tuesday delivered third-quarter earnings and revenue that topped estimates. But CrowdStrike stock fell on Wednesday as the January quarter outlook for a key financial metric underwhelmed investors.
The Sunnyvale, Calif.-based cybersecurity firm reported October-ended quarterly earnings after the market close on Tuesday.
CrowdStrike earnings climbed 13% to 93 cents a share on an adjusted basis. Revenue, including acquisitions, rose 29% to $1.01 billion.
Analysts polled by FactSet had predicted earnings of 81 cents a share, down 1%, on revenue of $983 million.
CrowdStrike Stock: ARR Key Metric
With CrowdStrike, Wall Street analysts focus on annual recurring revenue, or ARR. It's a key financial metric tied to subscription services growth.
Amid the IT outage, caused by a defective software update, analysts expected lower growth for "net new" ARR because of delays in signing contracts and expectations that many customers will seek price discounts when renewing contracts to help cover the cost of business disruptions in July.
"The key metric, net new ARR came in at $153 million, down 31% year-over-year, slightly above consensus but below buyside expectations," said Morgan Stanley analyst Hamza Fodderwala in a report. "Management brought down Q4 net new ARR estimates, indicating $180 million to $190 million in Q4 vs. consensus estimates around $215 million."
In Q3, total ARR increased 27% to $4.02 billion. Analysts had predicted total ARR of $4.01 billion.
"CrowdStrike reported a set of reasonable results, though net new ARR upside and implied January quarter ARR likely fell slightly short of consensus expectations," said BMO Capital Markets analyst Keith Bachman in a report. "The ongoing headwinds from more customer commitment packages will likely move consensus ARR estimates lower for the next few quarters."
UBS analyst Roger Boyd in a report said CrowdStrike stock is "not yet out of the woods."
"Overall, we thought Q3 results were ok," Boyd said. "Positively, the majority of customer commitment packages were spent on new modules. On the other hand, the Q4 outlook was cautious. Generally, we're inclined to believe that there is still significant conservatism in the guide, which makes commentary around a second half 2026 net new ARR reacceleration, as well as conviction in the long-term operating model still meaningful."
January Quarter Outlook Murky
Estimates for January quarter net new ARR may come down to low- to mid-20s percent growth, analysts said.
At William Blair, analyst Jonathan Ho said in a report: "(In Q3) net new ARR excluded $26 million from a non-cancellable contract with Carahsoft as the distributor exercised its right of transferability, and CrowdStrike does not expect this contract to recur."
He added: "Management provided commentary on net new ARR for the fourth quarter indicating the Street consensus is deviating from traditional seasonality."
Jefferies analyst Joseph Gallo has a similar view on the Q4 outlook.
"CrowdStrike also continues to expect a $30 million impact on net new ARR from the incident in Q4," he said. "CrowdStrike continues to have limited visibility into Q4 as it still expects extended sales cycles, additional customer scrutiny, muted upsell rates. Additional unknowns in Q4 include customer trends around embraced additional modules and a potential budget flush."
CrowdStrike Competitors
On the stock market today, CrowdStrike stock fell 4.1% to 349.54 in early trading. Heading into the CrowdStrike earnings report, shares were up 42% in 2024, down from a 56% gain on July 9, before the IT outage.
CrowdStrike competes with Palo Alto Networks, SentinelOne, Microsoft and others in the "endpoint" market. Endpoint security tools detect malware on laptops, mobile phones and other devices that access corporate networks.
Also, CrowdStrike is building a broad, threat-detection cybersecurity platform called XDR, which stands for extended detection and response. It monitors endpoints as well as web/email gateways, web application firewalls and cloud business workloads. Palo Alto and CrowdStrike are building out cloud platforms as the industry consolidates.
CRWD stock is among cybersecurity stocks to watch.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
