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The Ratings Game: CrowdStrike gets Wall Street praise for diversifying security outside of its core market

CrowdStrike Holdings Inc. shares rallied Thursday after the cybersecurity company showed Wall Street that it’s diversifying into more of a security platform with several products rather than just an endpoint security company.

CrowdStrike
CRWD,
+13.92%

stock rallied as much as 17% in Thursday trading, and was last up around 13% at $191.72, putting shares on track for their best one-day performance since Dec. 3, 2020. Shares are 36% off their record closing high of $293.18, set on Nov. 9, 2021.

Late Wednesday, CrowdStrike forecast a strong outlook for the year and beat Street expectations on quarterly results. The company expects adjusted earnings of 22 cents to 24 cents a share on revenue of $458.9 million to $465.4 million for the fiscal first quarter, and an earnings range of $1.03 to $1.13 a share on revenue of $2.13 billion to $2.16 billion for the year.

With that analysts hiked their first-quarter estimates to 22 cents a share on revenue of $462.1 million, from a previous 17 cents a share on revenue of $440.3 million. For the year, the Street raised its consensus to $1.07 a share on revenue of $2.13 billion, from a previous 90 cents a share on revenue of $2 billion. 

Read:‘The Cold War was over, I [but] think it’s restarted’: Putin’s cyberwar judo tactics, and how to cope with our fear of hacks

But what made this earnings report unique from past ones is CrowdStrike broke out numbers for products outside of its core endpoint-security services.

That was enough to prompt BTIG analyst Gray Powell to raise his rating on the stock to a buy with a $257 price target from neutral.

“While the quarter and the guide were very good, the game-changer for us was the incremental disclosure illustrating real traction in tangential markets outside of core endpoint security,” Powell said.

“To be fair, we still see competition ticking higher in CrowdStrike’s core endpoint target market,” Powell said. “But with tangential products currently contributing over 15% of ARR and growing in excess of 100% y/y, we now have hard evidence of a second and even third leg to the story emerging and a higher degree of confidence in CrowdStrike’s long-term growth profile.”

The company said that $157 million of its ARR, or annual recurring revenue, came from its growing IT hygiene, vulnerability management, identity protection, and log management products. ARR is a software-as-a-service metric that shows how much revenue the company can expect based on subscriptions.

CrowdStrike also pointed out that 69% of its customers subscribe to four or more of its products, while 57% subscribe to five or more, and 34% subscribe to six or more.

George Kurtz, CrowdStrike’s co-founder and chief executive, told MarketWatch in an interview Thursday that the company released the figures for the other products to show that it’s no longer just an endpoint-security provider.

“That’s indicative of a true platform company, and unfortunately, in our industry, everybody claims to be a platform,” Kurtz told MarketWatch. “But how do you prove that? Everybody says the same thing. You prove it by putting the numbers out.”

Of the 31 analysts who cover CrowdStrike as tracked by FactSet, 29 have buy-level ratings and two have hold ratings. Of those, seven hiked their price targets while eleven lowered their price targets resulting in an average target of $262.52 from a previous $269.71.

In addition to BTIG’s Powell, Morgan Stanley raised its rating to equal-weight from underweight. Back in November,  Morgan Stanley analyst Hamza Fodderwala initiated coverage on CrowdStrike with an underweight rating, back when only 22 out of 27 analysts had buy ratings on the stock.

With Thursday’s session, CrowdStrike’s stock is down about 7% over the past 12 months, versus a more than 9% rise by the S&P 500 index
SPX,
-0.57%
,
a less than 1% gain for the tech-heavy Nasdaq Composite Index
COMP,
-1.00%

 , and a less than 1% loss by the ETFMG Prime Cyber Security ETF
HACK,
-0.60%

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