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Why Is CrowdStrike Holdings Sinking Today?

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CrowdStrike Holdings (CRWD) shares have fallen close to 7% in pre-market trading today.

Why has CrowdStrike stock fallen?

The company released its earnings for the second quarter of 2020, ending in July, after the market closed on Thursday.

CrowdStrike reported sales of $108.1 million—a rise of 94% year-over-year. Subscription sales rose 98% to $97.6 million and accounted for 90% of total sales. The company’s annual recurring revenues rose 104% to $423.8 million.

Notably, the company reported revenues of $55.7 million and subscription sales of $49.2 million in the second quarter of 2019. CrowdStrike reported an adjusted EPS of -$0.18 in the second quarter of 2020—a significant improvement from the EPS of -$0.69 in the same period the previous year.

Analysts expected CrowdStrike to post revenues of $103.8 million and an EPS of -$0.23 in the second quarter. So, why is the stock falling despite beating analysts’ revenue and earnings estimates?

Was CrowdStrike’s guidance below analysts’ estimates?

CrowdStrike estimated sales between $117.1 million and $119.5 million in the third quarter of 2020. Meanwhile, the company estimated an EPS between -$0.12 and -$0.11. For 2020, the company estimated sales between $445.4 million and $451.8 million, while the EPS was forecast between -$0.65 and -$0.62.

Analysts expected CrowdStrike to post sales of $111.2 million with an EPS of -$0.13 in the third quarter. They expected sales of $434.92 and an EPS of -$0.73 in fiscal 2020. CrowdStrike’s guidance was also higher than the estimates.

According to a MarketWatch report, CrowdStrike’s earnings and revenue beat weren’t as aggressive as the previous quarter, which drove the stock lower today.

Key metrics in the second quarter of 2020

CrowdStrike added 730 new subscription customers in the second quarter. The subscription base was 3,789 at the end of July 31. The company stated that 50% of its subscription customers have subscribed to four or more cloud modules. In the second quarter, CrowdStrike launched CrowdScore. The product leverages cloud-based analytics, which allows enterprises to look at the company’s real-time threats.

CrowdStrike CEO George Kurtz said, “We delivered a strong second quarter with rapid subscription revenue growth and record net new ARR generated in the quarter. Customer growth accelerated as an increasing number of organizations recognize the power of CrowdStrike’s cloud-native Falcon platform to effectively stop breaches and simplify their security stack with our single-agent architecture.”

The company launched the Falcon Fund—an early-stage investment fund in partnership with leading venture capital company Accel. CrowdStrike has been positioned by market research firm Gartner as a leader in endpoint protection platforms.

What’s the target price?

Despite the recent pullback, the company has gained 150% since its IPO in June. The stock rose 16% after its first-quarter results. CrowdStrike stock has gained 17% since July. Analysts remain optimistic about the company’s growth. They expect sales to rise 42.1% to $618.13 million.

While CrowdStrike still isn’t profitable, its earnings will likely grow at an annual rate of 68.9% in the next five years. Analysts have a 12-month average target price of $89, which indicates an upside potential of 12% from the current price.

Currently, the company’s shares are trading 7.3% lower.

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