Lockdown-boosted Q3 earnings to lift CrowdStrike’s share price?

CrowdStrike is set to report an increase of 25% in earnings and 57% in revenues year-over-year when it releases its third quarter numbers on 1 December.

Dec. 1, 2021

The cybersecurity firm is tipped by analysts at Zacks to reveal earnings of $0.10 per share. Its revenues are tipped to come in at $364.8m.

CrowdStrike’s bottom line boost

Staff continuing to log into their employers’ networks from home triggering a greater need for security should boost CrowdStrike’s bottom line, Zacks said. The emergence of omicron variant of COVID would further accentuate that.

Zacks added that CrowdStrike is also likely to have benefited from stellar subscription revenue growth. In addition, its recent acquisitions of data log management group Humio and identity security firm Preempt will have boosted its top line and potentially attracted new customers.

Its collaboration with Amazon Web Service will also have been a key driver. “Expansion in the volume of transactions through Amazon’s [AMZN] AWS Marketplace, growth in the co-selling opportunities with AWS salesforce and the uptake of AWS service integrations are likely to have contributed,” Zacks said.

However, it’s not all good news, with increased spending on sales and marketing as well as research and development likely to have hit the company’s bottom line.

The cybersecurity market is on the up

CrowdStrike has had a strong pandemic, with second quarter results revealing a 70% hike in revenues to $337.7m. In Q1, revenues also climbed 70%.

Over the last 12 months, its share price has risen by 54.7% to close at $232.64 on 23 November. It has risen faster than rival VMware [VMW] whose price is down 14% and McAfee [MCFE], which is set to go private once again and whose share price is up 48.8%.

There appears to be more growth in the cybersecurity market to come.

The global cloud security market is estimated to reach $34.8bn in 2021 and $67.6bn by 2026, growing at a compound annual growth rate of 14.2%, according to ResearchandMarkets.com.

“The rising number of cyberattacks due to increasing digitalisation has aided the growth of the market [as have] trends such as Bring Your Own Device,” the report said.

However, the report did identify challenges such as a lack of awareness among enterprises and consumers due to the complexities of cloud computing models, and a lack of trust in cloud service providers.

What lies ahead for CrowdStrike’s

Analysts remain relatively bullish on the CrowdStrike stock. According to Market Screener, the stock has a consensus buy rating and an average target price of $305.89. This represents a potential 36% upside on 29 November’s closing price of $224.57.

Alex Henderson of Needham & Co said, “CrowdStrike’s platform is delivering a powerful blend of frictionless deployment and trial, exceptional scalability, and these are resulting in rapid growth which we think is sustainable over 50% for the next 3-5 years. Investors will be rewarded for buying and holding onto these shares,” as reported by CNBC.

Competition fears

But there is caution, with BTIG analyst Gray Powell recently downgrading the CrowdStrike stock to neutral from buy. He believes competition in the marketplace is on the rise and the factors driving its growth next year will ease from 2021.

He forecasts that its growth in annual recurring revenue will drop to the 40% to 45% range in a 2023 “upside scenario”.

Morgan Stanley has initiated coverage on the stock with a sell rating, with analyst Hamza Fodderwala also highlighting too much competition. It says CrowdStrike’s offerings are up to 20% more pricey than rivals making it vulnerable to losing customers.

There is certainly more competition from the likes of new players such as SentinelOne [S] and established firms such as VMware and Microsoft [MSFT]. Predictions that CrowdStrike’s revenues will come in showing 56% growth, compared with the 70% seen in both the first and second quarters of 2021, could also be a sign of stalling growth.

Although acknowledging the rapid growth of SentinelOne, Mizuho Securities analyst Gregg Moskowitz, who has a $360 price target on CrowdStrike, feels confident the company will keep surging.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.