CrowdStrike (CRWD) will release its second quarter (Q2) fiscal 2025 financial results on Aug. 28. However, the cybersecurity company’s stock has come under significant pressure ahead of this announcement, mainly due to a recent global outage caused by its faulty software update. This incident has led to a sharp decline in CrowdStrike’s share price, which has plummeted over 34% in one month.
The large-scale outage has sparked concerns regarding CrowdStrike’s short-term growth prospects, potential legal liabilities, customer retention rate, and competitive positioning in the cybersecurity market. These factors could have a notable financial impact, adding uncertainty in the short term.
While the effect of the outage on CrowdStrike’s short-term financials is still unknown, the significant correction in its stock price suggests that much of the negative sentiment is already factored in, potentially making CRWD stock an attractive investment near the current market price.
With this background, let’s explore factors to understand whether CrowdStrike stock is a buy ahead of its Q2 earnings release.
CrowdStrike Stock: Factors to Fuel Recovery
Even with short-term challenges, CrowdStrike is poised to deliver solid growth led by its dominant positioning in the cybersecurity industry, a large addressable market, and the deployment of artificial intelligence (AI)-driven solutions.
The company’s AI-native Falcon platform is witnessing solid growth, capitalizing on the increasing demand for advanced cybersecurity solutions. The platform’s architecture offers a significant competitive edge, enabling CrowdStrike to provide unified and comprehensive cybersecurity solutions.
In Q1 of fiscal 2025, CrowdStrike achieved impressive growth, with the number of deals involving eight or more product modules increasing by 95% year-over-year. This reflects the growing adoption of the Falcon platform, which offers cost savings and enhanced security by consolidating services. The introduction of the Falcon Flex subscription model has further fueled this growth, contributing over $500 million in deal value within just three quarters.
The demand for the Falcon platform was broad-based, and the company has built a record Q2 pipeline, indicating sustained momentum in CrowdStrike’s revenue growth. Moreover, the early success of the Falcon Flex program could drive larger deals in the second quarter.
Additionally, CrowdStrike’s focus on innovation positions its platform as an essential tool for companies navigating the AI revolution. As AI-driven cloud usage continues to expand, CrowdStrike is well-suited to secure the workloads that power this transformation.
Thanks to this momentum, CrowdStrike’s management anticipates a double-digit increase in net new Annual Recurring Revenue (ARR) in Q2. Moreover, the company’s subscription customer base will likely grow, with most customers adopting multiple modules. Higher ARR and increased module adoption are expected to support its top line, while the company’s emphasis on efficiency could bolster its margins and earnings per share (EPS).
CrowdStrike Stock: The Short-Term Challenges
CrowdStrike acted swiftly to resolve the issue and implemented a fix. However, the incident's widespread nature will likely have short-term consequences for the company. These repercussions could manifest in several ways.
First, the disruption might lead to longer deal cycles, as potential clients could become more cautious, seeking additional assurances before committing to contracts. This delay in closing deals could, in turn, affect CrowdStrike’s ability to acquire new customers, slowing down its growth momentum.
Additionally, the incident could impact the company’s short-term revenue and earnings. If customers decide to delay or reconsider their decisions due to concerns raised by the outage, CrowdStrike might experience a dip in its financial performance in the upcoming quarters.
The Bottom Line on CrowdStrike Stock
As the dust settles following CrowdStrike’s recent outage, concerns have arisen regarding potential market share losses, legal liabilities, and the impact on its platform adoption rate. These are valid issues that warrant attention.
Nonetheless, CrowdStrike remains a formidable player in the cybersecurity space. Although the recent outage might temporarily impact its market share, ARR, and EPS growth, the company’s long-term prospects appear strong. CrowdStrike’s continued investment in growth initiatives, expansion of sales capacity, and commitment to accelerating innovation will likely drive robust ARR growth over time.
In light of this, the recent dip in CrowdStrike’s share price may present an attractive buying opportunity, particularly as enterprises ramp up their cybersecurity spending. The sector’s overall growth momentum could provide a supportive backdrop for CrowdStrike’s recovery and future performance.
This optimism is echoed by analysts, with 33 out of 41 rating CrowdStrike as a “strong buy,” three as a “moderate buy,” and five as a “hold,” translating into a consensus rating of “strong buy.” The average price target for CrowdStrike’s stock is $356.68, representing a potential upside of approximately 49.7% from current levels.
For investors with a long-term perspective, CrowdStrike’s recent challenges may be a mere blip on the radar, offering a compelling entry point into a leading cybersecurity company poised for continued growth. However, CRWD stock could remain volatile in the short term.
On the date of publication, Amit Singh did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
