CrowdStrike plunges 20% even as Barclays defends following Q4 outlook miss
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CrowdStrike Holdings (NASDAQ:CRWD) plunged nearly 20% in premarket trading on Wednesday after the cybersecurity company offered fourth-quarter guidance that widely missed estimates, prompting investment firm Barclays to defend it even in the wake of slowing growth.
Analyst Saket Kalia, who has an overweight rating on CrowdStrike (CRWD) but lowered the price target to $155 from $180, noted that the sharp decline makes the stock more "investable," especially when taking into account its annual recurring revenue guidance and 30% free cash flow margins in fiscal 2024.
"The [fourth-quarter] reset will be painful, but we think [CrowdStrike] remains an investable name as the #1 vendor in corporate endpoint which is the top area of security investment according to our recent CIO survey," Kalia wrote in a note to clients.
CrowdStrike (CRWD) said it expects its fourth-quarter revenue to be in a range of $619.1M to $628.2M, compared to the $634.2M analysts had forecast. It also expects earnings, excluding one-time items, of $0.42 to $0.45 a share, which surpassed estimates of 34 cents a share.
The sell-off in CrowdStrike (CRWD) resulted in declines for other cybersecurity stocks, including Fortinet (FTNT), CyberArk (CYBR), Palo Alto Networks (PANW) and Check Point Software (CHKP).
The analyst added that the net annual recurring revenue miss in the third-quarter was driven by $15M coming from an elongated sales cycle for small and medium-sized businesses and another $10M from deals that are committed but were not included because they will be installed in phases.
Despite the elongated sales cycle for small and medium-sized businesses, Kalia pointed out that CrowdStrike's (CRWD) competitive win rate in that space improved, noting that SentinelOne's (S) results will be important to get a deeper dive into that part of the market.
Even when accounting for the slowdown in its outlook, Kalia defended CrowdStrike (CRWD), noting that in addition to 30% free cash flow margins, it is still growing revenue at roughly 30%, which should help it find support. The analyst also noted that endpoint security is seen as the "highest security priority" and CrowdStrike (CRWD) is the top vendor.
Lastly, the company's targets of $5B in annual recurring revenue in fiscal 2026 and margins of 20% to 22% in fiscal 2025 still look achievable, Kalia added. 
Earlier this month, hedge fund Tiger Global disclosed that it had reduced its stake in CrowdStrike Holdings (CRWD) during the third-quarter, while also making several other changes to its portfolio.