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CrowdStrike (CRWD) 1st Quarter Earnings: What to Expect

Is now the right time to bet on cybersecurity stocks? Evidenced by the impressive quarter just released from Zscaler (ZS) and the subsequent 35% surge in its stock that answer is a resounding yes. But can CrowdStrike (CRWD) duplicate Zscaler’s success? 

Cybersecurity is one of the fastest rising groups within the software space, and has gone on a massive rally since the market bottom in March. During that span CrowdStrike, which is set to report first quarter fiscal 2020 earnings after the closing bell Tuesday, has been one of the best stock performers. Amid the rapid global spread of the coronavirus, demand for better digital security has skyrocketed as companies have instructed employees to work from home. 

CrowdStrike’s endpoints protection application is cloud-based, leveraging data from machine learning and artificial intelligence. The company’s platform aims to protect workloads “across on-premise, virtualized, and cloud-based environments running on a variety of endpoints such as laptops, desktops, servers, virtual machines, and Internet of Things, or IoT, devices.” The question is, does the stock deserve its high premium, compared to peers such as Cisco Systems (CSCO) or Fortinet (FTNT)?

Posting stocks returns of more than 50% over the past six months, including 27% gains in three months, valuation concerns have emerged for CrowdStrike. While the company is certain to enjoy rapid growth within the cybersecurity, particularly as threats continue to rise, the stock price assumes that growth rate. On Tuesday investors and analysts will want assurances that the loss-making company not only can maintain its growth rate, but achieve profitability at the same time.

For the three months that ended April, Wall Street expects the Sunnyvale, Calif.-based company to lose 6 cents per share on revenue of $165.39 million. This compares to the year-ago quarter when it lost 47 cents per share on revenue of $96.08 million. For the full year, ending December, the loss is  expected to be 12 cent per share, while full-year revenue is expected to rise 51% year over year to $726.7 million.

Estimates suggests the cost of global cybercrime damages will reach $6 trillion annually by 2021, doubling from $3 trillion in 2015. CrowdStrike, which specializes in preventing ransomware, phishing and other kinds of cyberattacks could be one of the beneficiaries of that expanding market, according to BTIG analysts who recently increase its CrowdStrike price target from $67 to $80. Now trading near $90 the analyst might have to raise it again. 

The increased work from home shift will expand CRWD’s addressable market and drive “an acceleration in adoption of cloud form factors,” noted BTIG, which sees CrowdStrike’s recurring revenue growing about 50% in FY21 in a “reasonable upside scenario.” This could be an understatement, given that CrowdStrike’s total fiscal 2020 revenue skyrocketed 93%. In the fourth quarter not only did it report a smaller-than-expected loss, it added a record 870 net new subscription customers to end its year with roughly 5,400 customers, up 116%. 

On Tuesday CrowdStrike must show that its Q4 was no aberration. And not only must it deliver a top- and bottom-line beat, it must issue upside revenue guidance to maintain its premium stock price.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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