Shares of leading cybersecurity company, CrowdStrike (NASDAQ: CRWD) are up close to 6% in early market trading today after its earnings and revenue for fiscal Q4 of 2023 (ended in January) beat consensus estimates.
CrowdStrike reported revenue of $637 million and adjusted earnings of $0.47 per share. Comparatively, Wall Street forecast the company to report revenue of $625 million and adjusted earnings of $0.43 per share in the quarter.
Let’s see what impacted the performance of CrowdStrike in Q4 and if the tech stock remains a top bet for long term investors.
Is CrowdStrike stock a buy, sell or hold?
In Q4 of fiscal 2023, CrowdStrike increased sales by 48% year over year. Its subscription sales were also up 48% at $598.3 million, accounting for more than 90% of total revenue. The company ended the quarter with annual recurring revenue of $2.56 billion, an increase of almost 50% compared to the year-ago period.
Due to rising inflation and a challenging macro-environment, CrowdStrike’s adjusted gross margins fell to 77% compared to 79% in fiscal Q4 of 2022. Its adjusted net income also rose by 20% year over year to $95.6 million.
George Kurtz, CrowdStrike’s president, chief executive officer, and co-founder, stated, “CrowdStrike delivered a record fourth quarter that exceeded our expectations across the board.
He added, “Highlights of the quarter included record net new ARR of $222 million, record net new subscription customers of 1,873, record operating and free cash flow and a rule of 81 on a free cash flow basis. CrowdStrike’s growing market share showcases customers' recognition of the Falcon platform’s technology leadership and advanced AI that drives better security outcomes, consolidation and lower TCO.”
CrowdStrike added 1,873 net new subscription customers in the quarter, taking its total to 23,019 subscription customers, an increase of 41% year over year. Its module adoption rates stood at 62%, 39%, and 22% for five or more, six or more, and seven or more modules, respectively.
CrowdStrike announced a strategic alliance with Dell Technologies to help enterprises prevent, detect and respond to cyber threats. Its Falcon platform is available with volume licensing as part of the deal, and it can soon be added to the purchase of Dell’s line-up of personal computers.
What next for CRWD stock price?
CrowdStrike expects its total addressable market to expand from $76 billion in 2023 to $97.8 billion in 2025, providing the company with enough room to drive top-line growth higher in the next few years.
CRWD ended the year with a net customer retention rate of 125.3% which shows existing customers increased spending by 25.3% in the last 12 months. A highly engaged customer base allows CrowdStrike to cross-sell its portfolio of products and generate cash flows amid a difficult market cycle.
Similar to most other SaaS (software-as-a-service) companies, CrowdStrike also benefits from high operating leverage, which means it can expand profit margins at a much faster pace than expenses.
In Q4 of fiscal 2023, it reported an operating margin of 15%, while this metric stood at just 7% in fiscal 2021. The company also ended Q4 with a free cash flow of $209 million, indicating a margin of 33%.
Analysts tracking CrowdStrike stock expect sales to increase by 32.6% year over year to $3 billion, while adjusted earnings are forecast to increase by 33% to $2 per share in fiscal 2024. So, CRWD stock is priced at 10x forward sales and 65x forward earnings.
Despite its lofty valuation, CrowdStrike remains a top bet due to its improving margins, stellar revenue growth, and robust customer engagement rates.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
