CrowdStrike has 'difficult setup' going into Q4, Morgan Stanley says
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CrowdStrike (NASDAQ:CRWD) is set to report fourth-quarter results on Wednesday and even though the cyber security sector has seen a benefit thanks to geopolitical issues, Morgan Stanley notes rising expectations and growing competition point to a "difficult setup" going into the results.
Analyst Hamza Fodderwala, who rates CrowdStrike (CRWD) underweight with a $180 price target, notes that customer additions are "unlikely" to have outpaced a decline in average deal size, which could limit annual recurring revenue. 
"Our [fourth-quarter] checks still point to a favorable but consistent demand environment for CrowdStrike, with 61% of resellers above plan in Q4, in line with last quarter," Fodderwala wrote in a note to clients.
Fodderwala continued: "At the same time, we are picking up signs of rising competition and at least a modest uptick in discounting in competitive situations, primarily against SentinelOne (NYSE:S) and Microsoft (NASDAQ:MSFT). Incremental deal sizes are also generally lower on average as CrowdStrike pushes further down market." 
The analyst said that all of these factors combined are likely to lead to "more limited upside to consensus ARR estimates, which likely falls short of higher investor expectations."
CrowdStrike shares fell slightly more than 1% to $177.01 in premarket trading.
A consensus of Wall Street analysts expects CrowdStrike (CRWD) to earn $0.20 per share on $412.38 million in revenue.
In addition, the analyst said guidance for 2022 should be in the "low-40%" range for revenue growth, which would be slightly more than $2 billion. But there are concerns that lower margin guidance could be forthcoming, as companies invest due to strong demand and wages are rising. 
Last month, Wedbush Securities analyst Dan Ives said CrowdStrike (CRWD) was among the several cyber security companies that are likely to benefit from the rise in cyber attacks around the world as a result of Russia's invasion of Ukraine.