CrowdStrike Holdings Inc. warned three months ago of longer security software purchase cycles, a problem that has also hit its competitors, but the cybersecurity company now says it has managed to combat this weakness by selling more to its current customer base.
CrowdStrike CRWD reported record results and exceeded Wall Street expectations with its outlook on Tuesday. That performance came a quarter after CrowdStrike stock posted its worst single-day percentage decline in its history, after executives warned of a slowdown in subscriptions amid macroeconomic headwinds and longer customer buying cycles.
CrowdStrike executives pointed to two ways they’ve weathered the macroeconomic woes: a renewed focus on the small and medium-sized business market, where spending recession fears are more acute, and “upselling” products to existing customers.
Guggenheim analyst John DiFucci, who has a buy rating and a price target of $147, said CrowdStrike is “still ahead of the pack in a challenging environment.” The analyst said that while CrowdStrike’s new annual recurring revenue (ARR) grew just 4%, “it was positive growth, in contrast to most of our coverage universe over the period.”
Read: These ‘Three Horsemen’ Of Cybersecurity Will Most Likely Survive Slowing Demand, Says Morgan Stanley
CrowdStrike’s ARR, a software-as-a-service metric that shows how much revenue the company can expect to generate based on subscriptions, rose 48% from the year-ago quarter to $2.56 billion, while Street’s 2 .52 billion US dollars calculated.
“The soft macro backdrop is evident given the accelerating decline in new ARR for most of our coverage universe, but CrowdStrike continues to grow its new business through both add-on sales into its existing customer base and new logos,” said DiFucci. “The company has shown its resilience and quickly transitioned to mid-market and SMBs and this has led to new contracts as more sophisticated large enterprise customers across the software space appear to have become more aware of IT purchases (i.e. longer sales cycles). ”
CrowdStrike was just the latest cloud software company to underline the strength of its ecosystem, as existing customers were the main growth drivers in the form of upsells and renewed subscriptions. Vendors are still snapping up deals in a cost-conscious environment as companies slow spending amid a looming recession.
The model has backed identity management software company Okta Inc. OKTA, which said the majority of its business is in upsells and cross-sells to established customers, and Wall Street said the company is “partly over the top.” To varying degrees, this is also the case with other cybersecurity companies such as Palo Alto Networks Inc. PANW and Zscaler Inc. ZS.
As of late February: Palo Alto Networks shares rise as cybersecurity “budget review” favors large platforms
CrowdStrike said subscription customers with five or more, six or more, and seven or more modules grew 52%, 62%, and 75% year over year, respectively. The company added that 62% of customers have five or more subscriptions, while 22% have seven or more.
Citi Research analyst Fatima Boolani, which has a buy rating and a price target of $155, said the results and outlook should “contain not only market saturation and fears of pricing/discount pressures against a noisier Microsoft MSFT, but also the… Focusing investor energy back on the tangible Tech/wallet consolidation potential, emerging module penetration trajectory and market share gain area yet to be seen – profitably achievable at best-in-class unit economics and free cash flow conversion.”
UBS analyst Roger Boyd, who has a buy and price target of $165, said CrowdStrike reported “clean results in a challenging environment” and that the fourth quarter was “a step back in the right direction.”
“CrowdStrike is doing a good job of creating more at-bats in a more uncertain environment,” Boyd said, adding that the fourth quarter results “give us confidence that CrowdStrike can pull through, and with more conviction in the low 30% s growth.”
CrowdStrike shares rose 3.2% to close at $128.92 on Wednesday, while the S&P 500 index SPX ticked 0.1% higher and the tech-heavy Nasdaq Composite Index COMP rose 0.4%. CrowdStrike shares are down 17.8% over the past 12 months during the ETFMG Prime Cyber Security ETF HACK
up 15.2% and the First Trust Nasdaq Cybersecurity ETF CIBR up 12.6%.
Over the past 12 months, iShares Expanded Tech Software Sector ETF IGV is up 7.9%, Global X Cloud Computing ETF CLOU is up 9.4%, First Trust Cloud Computing ETF SKYY is up 19.6% and WisdomTree Cloud Computing Fund Down WCLD is down 20.2%.
Of the 45 analysts covering CrowdStrike, 40 have buy ratings and five have hold ratings, along with an average target price of $167.83.
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