CrowdStrike has one of the better fundamental profiles out of the cloud category. This is due to its 50%+ revenue growth rate, GAAP operating margin of (7%) and free cash flow margin of 31%. The company also has one of the best Rule of 40 numbers in the cloud category at 89%. The companies that have higher growth rates or higher Rule of 40 numbers tend to be IPOs, which are designed to be strong out the gate and then fade over time. Meanwhile, CrowdStrike has consistently offered best-of-breed performance for over three years.
Therefore, it’s important to look into what caused CrowdStrike’s weak price action following its earnings report particularly because the stock is widely recognized as one of the strongest cloud stocks on the market. CrowdStrike’s steep selloff of (27%) over the past 30 days isn’t fully satisfied by the $10 million miss on forward revenue and ARR in the last earnings report. Forward Q4 revenue was expected to be $634M and the company guided $619M to $628M for a miss of about $10 million, if we take a midpoint of $624 million (about 1.5% miss). ARR was $2.34 billion compared to analyst expectations of $2.35 billion, for a $10 million miss (less than 1% miss).
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