In a challenging IT spending environment, CrowdStrike (CRWD, Financial) demonstrated resilience by surpassing Q3 EPS and revenue expectations. This comes after a major outage in July affected about 8.5 million Windows devices, causing shares to drop 36% from July 18 to August 2. Despite concerns about closing deals and customer migration to competitors, CRWD added $153 million in net new Annual Recurring Revenue (ARR), totaling $4.02 billion, a 27% year-over-year increase, exceeding analysts' forecasts.
- The company introduced a "customer commitment package" to retain clients by offering incentives and discounts. Although this initiative is expected to reduce revenue by $30 million over two quarters, it is seen as a worthwhile investment. Many customers deepen their engagement with CRWD, as evidenced by a 31% increase in adoption rates for seven or more modules and a 20% increase for eight or more modules.
- Despite these efforts, the macroeconomic environment remains challenging with limited visibility as enterprises scrutinize spending, extending sales cycles. Consequently, CRWD provided a cautious Q4 outlook, aligning EPS and revenue with expectations. This conservative forecast was disappointing, especially compared to competitor Qualys (QLYS, Financial), which offered optimistic Q4 guidance earlier in November.
- Regarding competition, SentinelOne (S, Financial) experienced a temporary boost following CRWD's earnings report, possibly indicating it gained some business from CRWD due to the latter's conservative outlook. SentinelOne's Q3 earnings report on December 4 will shed more light on whether it captured market share following the CRWD outage.
Overall, CRWD delivered a strong quarterly performance despite the challenging environment, moving past the technical outage. Shares have surged over 60% since early August, but the high expectations set a difficult benchmark. The conservative Q4 guidance has prompted a sell-the-news response. However, CRWD's technological strengths and the growing complexity of cybersecurity threats position it for sustained growth in the long term.
