Cybersecurity company CrowdStrike (NASDAQ:CRWD) beat Wall Street’s revenue expectations in Q3 CY2024, with sales up 28.5% year on year to $1.01 billion. The company expects next quarter’s revenue to be around $1.03 billion, close to analysts’ estimates. Its non-GAAP profit of $0.93 per share was 14.9% above analysts’ consensus estimates.
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CrowdStrike (CRWD) Q3 CY2024 Highlights:
- Revenue: $1.01 billion vs analyst estimates of $983.1 million (28.5% year-on-year growth, 2.8% beat)
- Adjusted EPS: $0.93 vs analyst estimates of $0.81 (14.9% beat)
- Adjusted Operating Income: $194.9 million vs analyst estimates of $169.3 million (19.3% margin, 15.1% beat)
- Revenue Guidance for Q4 CY2024 is $1.03 billion at the midpoint, roughly in line with what analysts were expecting
- Adj EPS Guidance for Q4 CY2024 is $0.85 billion at the midpoint, missing what analysts were expecting by $0.01
- Management raised its full-year Adjusted EPS guidance to $3.75 at the midpoint, a 3.3% increase
- Operating Margin: -5.5%, down from 0.4% in the same quarter last year
- Free Cash Flow Margin: 22.8%, down from 28.3% in the previous quarter
- Annual Recurring Revenue: $4.02 billion at quarter end, up 27.5% year on year
- Market Capitalization: $89.15 billion
“CrowdStrike surpassed $4 billion in ending ARR in the quarter - the fastest and only pure play cybersecurity software company to reach this reported milestone - as our single platform approach and trailblazing innovation continue to resonate at-scale,” said George Kurtz, Founder and CEO.
Company Overview
Founded by George Kurtz, the former CTO of the antivirus company McAfee, CrowdStrike (NASDAQ:CRWD) provides cybersecurity software that protects companies from breaches and helps them detect and respond to cyber attacks.
Endpoint Security
Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks. As the volume of internet enabled devices grows, every device that employees use to connect to business networks represents a potential risk. Endpoint security software enables businesses to protect devices (endpoints) that employees use for work purposes either on a network or in the cloud from cyber threats.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last three years, CrowdStrike grew its sales at an incredible 42.8% compounded annual growth rate. Its growth surpassed the average software company and shows its offerings resonate with customers, a great starting point for our analysis.
This quarter, CrowdStrike reported robust year-on-year revenue growth of 28.5%, and its $1.01 billion of revenue topped Wall Street estimates by 2.8%. Company management is currently guiding for a 22.1% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow by 20.4% over the next 12 months. This projection is still healthy and implies the market sees success for its products and services.
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Annual Recurring Revenue
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
CrowdStrike’s ARR punched in at $4.02 billion in Q3, and over the last four quarters, its growth was fantastic as it averaged 31.7% year-on-year increases. This performance aligned with its total sales growth and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes CrowdStrike a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue. 
Customer Acquisition Efficiency
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
CrowdStrike is very efficient at acquiring new customers, and its CAC payback period checked in at 24.4 months this quarter. The company’s performance indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give CrowdStrike the freedom to invest in new product initiatives while maintaining optionality. 
Key Takeaways from CrowdStrike’s Q3 Results
It was great to see CrowdStrike’s positive full-year EPS guidance, which exceeded analysts’ expectations. We were also happy its revenue outperformed Wall Street’s estimates this quarter. On the other hand, its EPS guidance for next quarter slightly missed. Overall, this quarter had some key positives, but it wasn't perfect. The stock is up a lot recently, showing heightened expectations, and shares traded down 3.8% to $350.82 immediately after reporting.
Is CrowdStrike an attractive investment opportunity right now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
