Why CrowdStrike Dipped, but Then Rallied Today

Key Points

• CrowdStrike beat revenue and adjusted earnings expectations in its second fiscal quarter.

• Third-quarter revenue guidance came in a tad light, and management also announced a bolt-on acquisition.

• However, AI-based commentary on a second-half reacceleration in ARR appears to be encouraging investors today.

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Shares of CrowdStrike (NASDAQ: CRWD) initially dipped this morning, as much as 3.2%, before rebounding to a 4.3% gain as of 2:08 p.m. ET.

CrowdStrike delivered earnings last night that beat expectations, as has been the pattern for the formidable cybersecurity company. And while it looked as though slightly underwhelming guidance for next quarter initially led to a sell-off, investors who took time to listen to management's comments and view the longer-term picture eventually sent the stock higher.

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CrowdStrike strikes again with a quarterly beat

In its fiscal second quarter, CrowdStrike delivered revenue growth of 21.4% to $1.17 billion, ahead of expectations, with adjusted (non-GAAP) earnings per share of $0.93, up just 5.7%, but also ahead of expectations.

CrowdStrike is a high-performing, artificial intelligence (AI)-enabled cybersecurity disruptor that typically beats expectations; however, there was a bit of a post-earnings hiccup when the company only guided for $1.21 billion to $1.22 billion in revenue for the current quarter, which was a tad short of the $1.23 billion estimated by Wall Street analysts. Additionally, CrowdStrike announced a bolt-on acquisition of Onum, a real-time data telemetry company that CrowdStrike will add to its next-gen SIEM (Security Information and Event Management) products. While the acquisition could be a positive, it will likely mean either more dilution or cash used for the purchase. CrowdStrike didn't disclose a purchase price.

While those details may have spurred a short sell-off given CrowdStrike's high valuation, commentary from CEO George Kurtz was very positive, with an emphasis on revenue and annualized recurring revenue (ARR) acceleration in the coming quarters. For instance, while net new ARR was over 20% last quarter, Kurtz sees new ARR accelerating to at least 40% year-over-year growth in the second half of the year.

Image source: Getty Images.

CrowdStrike is a thematic leader, but at a price

No doubt, customers are flocking to CrowdStrike, which built its cybersecurity software platform from the ground up as a data mining AI-inspired platform in which the data it generates consistently reinforces CrowdStrike's algorithms in a virtuous flywheel of constant improvement. That appears to be resonating in today's cloud-based AI-driven era.

That being said, investors have caught on, as the stock is priced extremely high at roughly 120 times this year's adjusted earnings estimates and 23 times this year's projected revenue.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool has a disclosure policy.