CRWD Q2 Earnings Beat: Will Weak FY25 Guidance Drag Down Shares?

CrowdStrike Holdings, Inc. CRWD reported non-GAAP earnings of $1.04 per share in the second quarter of fiscal 2025, which surpassed the Zacks Consensus Estimate of 98 cents and came ahead of management's guidance of 98-99 cents. CRWD reported non-GAAP earnings of 74 cents in the year-ago quarter. The robust bottom-line performance was mainly driven by higher revenues and better cost management.

CrowdStrike's fiscal second-quarter revenues of $963.9 million rose 32% year over year and surpassed the consensus mark of $958.58 million. The top line was also higher than the company's guidance of $958.3-$961.2 million. The strong adoption of the Falcon platform and better sales execution mainly aided top-line growth in the fiscal second quarter.

Strong adoption of the Falcon platform can be attributable to its ability to consolidate cybersecurity functions at scale, meeting the market's demand for a unified AI-powered solution. The expansion of available modules has enhanced the platform's value, leading to increased adoption, particularly in cloud, Identity and Falcon Next-Gen SIEM modules.

Despite the strong second-quarter performance, CrowdStrike lowered guidance for fiscal 2025 due to several factors, including an extended sales cycle and planned delay in the vast majority of outbound pipeline generation activities for a few weeks following the July 19 incident.

The stock has plunged 23% since the global IT outage incident on July 19, underperforming the Zacks Internet – Software industry's growth of 4.6%. Given the company's lowered guidance for fiscal 2025, we expect CrowdStrike's share price to be under pressure in the near term.

Top-Line Details of CRWD

Subscription revenues (95.3% of the total revenues) jumped 33% year over year to $918.3 million. Professional services revenues (4.7% of the total revenues) rose 9.5% year over year to $45.6 million.

As of July 31, 2024, annual recurring revenues were $3.86 billion, up 32% year over year. The company added $217.6 million to its net new ARR in the reported quarter.

CrowdStrike's subscription customers, who adopted five or more cloud modules, represented 65% of the total subscription customers, those with six or more cloud modules accounted for 45% and those with seven or more cloud modules represented 29% as of July 31, 2024.

CRWD's Operating Details

CrowdStrike's non-GAAP gross profit increased 33% to $756 million in the fiscal second quarter from $568.2 million in the year-ago quarter. The non-GAAP gross margin remained flat at 78%. The strong gross margin performance was primarily driven by the company's ability to command stable pricing, supported by the exceptional customer value delivered by its Falcon platform, as well as its continued investments in data center and workload optimization.

The non-GAAP subscription gross profit soared 34.5% year over year to $740.5 million, while the gross margin increased 100 bps to 81% on a year-over-year basis. The non-GAAP professional gross profit declined 13% to $15.5 million, while the gross margin fell 900 bps to 34% on a year-over-year basis.

CrowdStrike's total non-GAAP operating expenses increased 23% to $529.2 million from $412.5 million reported in the year-ago quarter. However, as a percentage of revenues, non-GAAP operating expenses declined to 55% from 56% in the year-ago quarter.

Non-GAAP sales and marketing (S&M) expenses jumped 27.4% year over year to $294.3 million. Non-GAAP research and development (R&D) expenses climbed 31.4% year over year to $174 million. Non-GAAP general and administrative (G&A) expenses increased 24% year over year to $61 million. As a percentage of revenues, S&M and G&A expenses contracted by 100 bps each while R&D expenses remained flat at 18%.

The non-GAAP operating income jumped 46% to $226.8 million, mainly driven by higher revenues. The non-GAAP operating margin for the quarter improved 300 bps year over year to 24%, which benefited from a higher gross margin and lower operating expenses as a percentage of revenues.

CRWD's Balance Sheet & Cash Flow

As of July 31, 2024, cash and cash equivalents were $4.04 billion. CrowdStrike had a long-term debt of $743.2 million.

In the fiscal second quarter, CRWD generated operating and free cash flows of $327 million and $272 million, respectively.

CrowdStrike's Q3 and FY25 Guidance

CrowdStrike initiated guidance for the fiscal third quarter and revised the projections for fiscal 2025. For the fiscal third quarter, CrowdStrike anticipates revenues between $979.2 million and $984.7 million. The non-GAAP operating income is expected in the band of $166.7-$170.8 million. Non-GAAP net income is forecasted in the range of $201.2-$205.2 million. The company expects non-GAAP earnings per share in the band of 80-81 cents. The consensus mark for fiscal third-quarter revenues and non-GAAP earnings is pegged at $958.6 million and 98 cents per share, respectively.

For fiscal 2025, CRWD now expects revenues between $3,890 million and $3,902.2 million, down from the previously projected range of $3,976.3-$4,010.7 million. The updated non-GAAP operating income for fiscal 2025 is now projected in the band of $774.7-$783.9 million compared with the previously guided range of $890.1-$916.5 million.

The company now expects non-GAAP net income in the range of $908.8-$918.0 million compared with the previous guidance of $985.6-$1,012 million. Non-GAAP earnings are now anticipated in the band of $3.61-$3.65, down from the previous guidance range of $3.93-$4.03. The consensus mark for fiscal 2025 revenues and non-GAAP earnings is pegged at $3.97 billion and $3.92 cents per share, respectively.

Zacks Rank & Stocks to Consider

CRWD currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the broader technology sector are Aspen Technology AZPN, Celestica CLS and Arista Networks, each sporting a Zacks Rank #1 (Strong Buy) at present.

The consensus mark for Aspen's 2025 earnings has been revised upward by 70 cents to $7.43 per share over the past 30 days, indicating a 12.8% year-over-year increase. It has a long-term earnings growth expectation of 13.1%. The stock has lost 2.7% year to date.

The Zacks Consensus Estimate for Celestica's 2024 earnings has been revised upward by 33 cents to $3.65 per share in the past 60 days, suggesting year-over-year growth of 50.2%. Shares of Celestica have surged 72% year to date.

The Zacks Consensus Estimate for Arista's 2024 earnings has been revised upward by 30 cents to $8.24 per share in the past 30 days, indicating an increase of 18.73% on a year-over-year basis. Shares of ANET have jumped 46.7% year to date. It has a long-term earnings growth expectation of 17.2%.

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