Adoption Of Falcon Flex Will Deepen Integration And Increase Customer Loyalty

Key Takeaways

• Successful adoption of Falcon Flex and financial services offerings suggests potential for accelerated revenue and increased customer retention through deeper platform integration.
  
• Strategic acquisitions and partnerships, along with AI-driven innovation, are enhancing CrowdStrike's market position and potential future revenue by expanding its customer base and brand recognition.
  
• Extended sales cycles and customer scrutiny from a recent incident could hinder future revenue growth, impacting margins and profitability.

Catalysts

Provides cybersecurity solutions in the United States and internationally.

• The Falcon Flex subscription model is rapidly increasing both the adoption of CrowdStrike's platform and its overall deal size, which indicates potential for accelerated revenue growth due to increased customer investment and platform adoption.
  
• CrowdStrike is forging a path in AI-powered cybersecurity innovation, particularly through initiatives like the acquisition of Adaptive Shield and advances in identity protection, which could enhance future revenue streams by broadening market share and product differentiation.
  
• The introduction of CrowdStrike Financial Services is allowing customers greater financial flexibility, which may lead to larger deals, faster deal cycles, and longer-term subscriptions, indicating a potential boost in future earnings and ARR growth.
  
• The growing number of modules adopted by customers, as indicated by increasing module usage (customers with 7 or more modules), suggests a trend towards deeper integration and stickiness which could improve customer retention rates and thus future revenues and net margins.
  
• High-profile strategic partnerships and expanding global presence evidenced by events like Fal.Con are enhancing CrowdStrike's market position, which may drive further revenue growth and improve margins through increased brand recognition and customer base expansion.

CrowdStrike Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CrowdStrike Holdings's revenue will grow by 22.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.4% today to 9.0% in 3 years time.
• Analysts expect earnings to reach $612.3 million (and earnings per share of $2.91) by about December 2027, up from $126.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $195.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 156.7x on those 2027 earnings, down from 705.6x today. This future PE is greater than the current PE for the US Software industry at 43.0x.
• Analysts expect the number of shares outstanding to decline by 5.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.95%, as per the Simply Wall St company report.

CrowdStrike Holdings Future Earnings Per Share Growth

Risks

• The July 19 incident has led to near-term headwinds including extended sales cycles and increased scrutiny from customers, which may affect future revenue growth and net new ARR.
  
• There is limited visibility in Q4 due to ongoing customer commitment packages (CCPs), leading to muted upsell rates and posing a risk to revenue and ARR growth.
  
• The temporary disconnect between ARR and subscription revenue due to extended time offered in CCPs could complicate revenue projections in the short term.
  
• Continued deployment of CCPs may result in higher-than-usual contraction and potentially impact net margins and overall profitability.
  
• Extended sales cycles and additional approvals post-incident could delay revenue realization and impact earnings in the subsequent quarters.

Valuation

• The analysts have a consensus price target of $373.38 for CrowdStrike Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $540.0, and the most bearish reporting a price target of just $185.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $6.8 billion, earnings will come to $612.3 million, and it would be trading on a PE ratio of 156.7x, assuming you use a discount rate of 7.0%.
• Given the current share price of $362.97, the analyst's price target of $373.38 is 2.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.