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CrowdStrike's Q2 Earnings Growth to be Hit by Sluggish Sales
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CrowdStrike Holdings, Inc. (CRWD - Free Report) is set to announce second-quarter fiscal 2025 results on Aug. 28. The Zacks Consensus Estimate of 98 cents for the company’s second-quarter non-GAAP earnings per share (EPS) indicates a 32.4% year-over-year increase.
While the bottom-line projection might appear to be a positive indicator, the reality is more nuanced when compared to (more than) 50% growth that CrowdStrike has consistently delivered in the past 13 quarters.
Although CrowdStrike has experienced impressive growth since its IPO, recent quarterly reports have shown a deceleration in its growth rate. The company's revenue growth, while still robust, is not as explosive as in previous years.
CrowdStrike had enjoyed more than 50% year-over-year top-line growth till fiscal 2023. However, the growth rate decelerated in fiscal 2024 to 36%. The current Zacks Consensus Estimate for second-quarter fiscal 2025 suggests that top-line growth will further decelerate to 31%.
This slowdown is partly due to the law of large numbers — as companies grow larger, maintaining high percentage growth rates becomes increasingly difficult. Also, CrowdStrike’s second-quarter performance is likely to have been hurt by softening IT spending. The still-high interest rates and protracted inflationary conditions have impacted consumer spending. Meanwhile, enterprises are postponing their large IT spending plans due to a weakening global economy amid ongoing macroeconomic and geopolitical issues.
Some of the cybersecurity players have already pointed out that organizations are delaying or taking more time in finalizing deals or even rightsizing deals in the current uncertain macroeconomic environment. This scenario may create a negative impact on CrowdStrike’s sales growth in the to-be-reported quarter.
Rising Expenses: A Drag on CRWD’s Profitability
As CrowdStrike battles slowing sales growth, its profitability is also under pressure due to rising expenses. The company has been aggressively investing in sales and marketing (S&M) and research and development (R&D) to maintain its competitive edge in the crowded cybersecurity market. While these investments are crucial for long-term growth, they are straining the company's bottom-line growth.
CrowdStrike's S&M expenses have ballooned from $173 million in fiscal 2019 to a staggering $1.14 billion in fiscal 2024. This sharp increase reflects the company's commitment to expanding its sales force and boosting its market presence. In the first quarter of fiscal 2025 alone, S&M expenses rose by approximately 25% year over year, a trend that is expected to continue in the second quarter.
R&D spending has also surged, with CrowdStrike increasing its investment nine-fold over the past six years. These expenses are vital for enhancing the company's cloud platform and staying ahead of competitors, but they are also eroding profitability. In the last reported quarter, R&D expenses jumped by over 31% and similar levels of spending are expected for the second quarter.
Zacks Rank & Stocks to Consider
Currently, CrowdStrike carries a Zacks Rank #5 (Strong Sell).
The Zacks Consensus Estimate for PayPal’s 2024 earnings has been revised 19 cents upward to $4.42 per share in the past 30 days, which suggests a year-over-year decline of 13.3%. The company has an estimated long-term earnings growth rate of 15.9%.
The Zacks Consensus Estimate for AudioEye’s 2024 earnings has been revised upward by 10 cents to 47 cents per share in the past 30 days, which calls for an increase of 327.3% on a year-over-year basis. The company has an estimated long-term earnings growth rate of 25%.
The consensus mark for Aspen Technology’s fiscal 2025 earnings has been revised upward by 10.4% to $7.43 per share over the past 30 days, which indicates a 12.8% increase from 2023. The company has a long-term earnings growth expectation of 13.1%.
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CrowdStrike's Q2 Earnings Growth to be Hit by Sluggish Sales
CrowdStrike Holdings, Inc. (CRWD - Free Report) is set to announce second-quarter fiscal 2025 results on Aug. 28. The Zacks Consensus Estimate of 98 cents for the company’s second-quarter non-GAAP earnings per share (EPS) indicates a 32.4% year-over-year increase.
While the bottom-line projection might appear to be a positive indicator, the reality is more nuanced when compared to (more than) 50% growth that CrowdStrike has consistently delivered in the past 13 quarters.
CrowdStrike Price and EPS Surprise
CrowdStrike price-eps-surprise | CrowdStrike Quote
CRWD’s Slowing Sales Growth: A Critical Issue
Although CrowdStrike has experienced impressive growth since its IPO, recent quarterly reports have shown a deceleration in its growth rate. The company's revenue growth, while still robust, is not as explosive as in previous years.
CrowdStrike had enjoyed more than 50% year-over-year top-line growth till fiscal 2023. However, the growth rate decelerated in fiscal 2024 to 36%. The current Zacks Consensus Estimate for second-quarter fiscal 2025 suggests that top-line growth will further decelerate to 31%.
This slowdown is partly due to the law of large numbers — as companies grow larger, maintaining high percentage growth rates becomes increasingly difficult. Also, CrowdStrike’s second-quarter performance is likely to have been hurt by softening IT spending. The still-high interest rates and protracted inflationary conditions have impacted consumer spending. Meanwhile, enterprises are postponing their large IT spending plans due to a weakening global economy amid ongoing macroeconomic and geopolitical issues.
Some of the cybersecurity players have already pointed out that organizations are delaying or taking more time in finalizing deals or even rightsizing deals in the current uncertain macroeconomic environment. This scenario may create a negative impact on CrowdStrike’s sales growth in the to-be-reported quarter.
Rising Expenses: A Drag on CRWD’s Profitability
As CrowdStrike battles slowing sales growth, its profitability is also under pressure due to rising expenses. The company has been aggressively investing in sales and marketing (S&M) and research and development (R&D) to maintain its competitive edge in the crowded cybersecurity market. While these investments are crucial for long-term growth, they are straining the company's bottom-line growth.
CrowdStrike's S&M expenses have ballooned from $173 million in fiscal 2019 to a staggering $1.14 billion in fiscal 2024. This sharp increase reflects the company's commitment to expanding its sales force and boosting its market presence. In the first quarter of fiscal 2025 alone, S&M expenses rose by approximately 25% year over year, a trend that is expected to continue in the second quarter.
R&D spending has also surged, with CrowdStrike increasing its investment nine-fold over the past six years. These expenses are vital for enhancing the company's cloud platform and staying ahead of competitors, but they are also eroding profitability. In the last reported quarter, R&D expenses jumped by over 31% and similar levels of spending are expected for the second quarter.
Zacks Rank & Stocks to Consider
Currently, CrowdStrike carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the broader technology sector are PayPal (PYPL - Free Report) , AudioEye (AEYE - Free Report) and Aspen Technology (AZPN - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for PayPal’s 2024 earnings has been revised 19 cents upward to $4.42 per share in the past 30 days, which suggests a year-over-year decline of 13.3%. The company has an estimated long-term earnings growth rate of 15.9%.
The Zacks Consensus Estimate for AudioEye’s 2024 earnings has been revised upward by 10 cents to 47 cents per share in the past 30 days, which calls for an increase of 327.3% on a year-over-year basis. The company has an estimated long-term earnings growth rate of 25%.
The consensus mark for Aspen Technology’s fiscal 2025 earnings has been revised upward by 10.4% to $7.43 per share over the past 30 days, which indicates a 12.8% increase from 2023. The company has a long-term earnings growth expectation of 13.1%.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.