Crowdstrike Holdings (CRWD) shares plunged lower Wednesday after the cybersecurity experts posted disappointing third quarter earnings and warned of “increased macroeconomic headwinds” for the sector in the coming year.
Crowdstrike said current quarter revenues would likely range between $619.1 million to $628.2 million, well shy of Street forecasts, citing longer sales cycles to its budget-focused customer base.
For the three months ending in October, Crowdstrike posted earnings of 24 cents per share, missing Street forecasts by around 7 cents, on revenues of $580.9 million, a tally the came in just ahead of estimates. Annual recurring revenue was pegged at $198.1 million, up 17% from last year but firmly south of the 45% growth rate recorded in the second quarter.
"As we discussed on our last earnings call, organizations were starting to respond to macroeconomic conditions by adding extra layers of required approvals and extending the time it took to close some deals. As Q3 progressed and fears of a recession grew, this dynamic became more pronounced," CEO George Kurtz told investors on a conference call late Tuesday.
"Additionally, given the increased scrutiny on budgets, we're not going to expect a typical Q4 budget flush, leading us to adjust our Q4 net new ARR expectations," he added. "But this caution does not deter our confidence in the long-term market position of CrowdStrike or the resiliency of the cybersecurity market. We see strong inherent demand for our products, and we entered Q4 with a record pipeline, which is even more important in times of an evolving macro and elongated sales cycles."
Crowdstrike shares were marked 18.6% lower in early Wednesday trading to change hands at $112.45 each, a move that would extend the stock's year-to-date decline to around 44%.
"Cybersecurity demand remains resilient & budgets are not seeing cuts, but nobody is immune to negative impacts from the worsening macro backdrop," said D.A. Davidson analyst Rudy Kessinger, who carries a 'buy' rating and a $145 price target on the stock. "
"Deal cycles are lengthening, particularly in the SMB/Mid-Market, and customers are seeking flexibility on start dates/ contracting/billing," he added.
However, there is a heightened focus on cost optimization & vendor consolidation in the current environment, which should help CRWD weather the storm better than most other security vendors given their broad platform of best-in-class, mission critical security solutions."
