Strictly Business: CrowdStrike Earnings Recap
Thoughts on CRWD's recent report.
CRWD – After a disappointing Q3, I viewed CrowdStrike’s March 7 report as an important one. Working conservatively off last quarter’s record-low beat, I estimated $640M in revenue with a $685M Q1 guide. We got $637.4M and $678.2M.
In a vacuum that might look a tad light, but I’m glad to say the secondary results seem to have bailed us out:
A strong enough FY24 revenue guide to imply some stabilization in growth. Initial guides have been a wildcard this season. In this case, CRWD will be setting a rough floor for where its slide might settle. I’m hopeful we see a number north of 25%. I admit to being too conservative here given the consensus was in the low-30’s. Regardless, the 34.5% guide at the top end gives us some breathing room.
Net new ARR (Annual Recurring Revenue) of $180M or better. Last quarter management forecasted a 10% sequential decline from Q3’s $198M. Any dip larger than 10% would be a major concern given the importance CRWD has attached to this metric. Phew! Net new ARR ended up growing 2.2% YoY and 11.9% QoQ to a record $221.7M. Nice bounce back.
Remaining Performance Obligation above $3B. The final $3.37B is not only a beat with room to spare but meant a re-acceleration to 48.7% YoY growth from 44.0%. In addition, the 20.4% QoQ growth was the first time >20% in eight quarters. I view this as a strong sign of stability heading into the new year.
A rebound in net new customer growth. Last quarter’s 1,460 was the smallest in eight quarters. Management referenced delayed deals as a factor while pointing to RPO as evidence of pipeline stability. I’d like to feel we are exiting the year on firmer footing in this area. Another phew! The record 1,873 new customers is a very welcome result. That means CRWD’s disappointing Q3 is now bracketed by its two biggest customer adds ever. That certainly smooths things out into FY24.
Continued strength in customers using 5+, 6+, and 7+ modules, which would imply current customers still see value in expanding usage. No issues here. Each of these metrics ticked up versus last quarter and last year.
In Q4 CRWD traditionally updates its standard “120%+” net retention rate comment with specific figures for the year. I’d like to see the final trend along with management’s initial thoughts on where NRR might go during the upcoming year. Another pleasant surprise. The final numbers Q1 to Q4 were 125.5%, 127.6%, 127.6%, and 125.3%. Each of those figures is above last year’s single-quarter high of 123.9%. I’d call this a strong endorsement of CRWD’s value to current customers, especially considering the current spending environment.
Another strong showing in cash flow and profit margin. If I’m going to accept lower growth, this is a must. I’m eyeing 30%+ for cash flows and 15%+ for profits. All good here. Operating cash flow margin was 42.9% and free cash 32.9%. Operating and net profit margins were 15.0% and 17.5%, respectively.
Comfort in management’s forward plan. Q3 clearly changed the landscape. If nothing else, CEO George Kurtz has aggressively restructured management to adjust. I’m curious to hear how he sees things playing out with the changes. This was one of the more comfortable calls I listened to this season. I guess a bounce back quarter will do that for you. Even while acknowledging the potential for continued macro headwinds, management expressed confidence it can produce “thoughtful and balanced growth” during the upcoming year. Sounds good to me.
There’s not much to complain about here. After raising plenty of questions in Q3, I believe CRWD provided plenty of answers in Q4. The positive surprises in net new ARR, customer growth, and RPO all have me feeling considerably better about CRWD’s prospects for the upcoming year. I wrote above I was looking for a plan. Everything I’m seeing suggests CrowdStrike does indeed have one. I’m happy to stick around to see if it can keep executing.
After repeated requests, I’ve started adding the section below to these recaps. However, EVERYONE MUST MAKE THEIR OWN DECISION. I can only state what I am doing with our shares and not what anyone else should do with theirs. We all must manage our own situation.
**Warning! This might get a little advanced.** CrowdStrike already entered this report as our largest position. Prior to the release, I sold covered calls on about 40% of our shares at strikes of $130 ($5.51 premium), $135 ($5.05 premium), and $140 ($2.51 premium). I liked the report enough I bought more shares at $132 to back the $130 calls. So, if we close higher than $130 on Friday, I’ll collect a $3.51 premium while keeping the original number of shares (I’ll be getting an effective price of $135.51 for those new $132 shares). If we close below $130, I’ll end up adding about 15% more shares at $126.49 ($132 for the new shares minus the $5.51 I keep). I’m OK with both outcomes.
Of course, that all assumes the $135 and $140 strikes don’t come into play (which is a problem I’d be happy to manage). Either way, there is a good chance we’ll end the week with CRWD remaining our biggest holding.
Congratulations and good luck to any holders whatever you decide.