CrowdStrike Stock Tumbles: Here's What Morgan Stanley Predicts Next

Business Insider

2 days ago

CrowdStrike (NASDAQ:CRWD) stock had surged more than 40% year-to-date heading into its first fiscal quarter report, with its elevated valuation setting a high bar for performance. However, the results fell short, and shares tumbled ~6% in Wednesday's trading session.
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Revenue climbed 19.4% year-over-year to $1.1 billion but still fell $10 million short of Wall Street's expectations. According to management, subscription revenue took an $11 million hit, largely due to hurdles tied to Customer Commitment Packages (CCP), driven by one-off customer incentives and special partner programs. These headwinds aren't going away just yet – management expects a continued drag of $10 to $15 million per quarter over the next three periods. On a brighter note, the bottom line came through: adjusted EPS landed at $0.73, outpacing the Street's forecast by $0.07.
But the outlook also failed to please. For the current quarter, CrowdStrike sees revenue landing in the range between $1.145 billion and $1.152 billion, falling short of the $1.16 billion consensus estimate.
According to Morgan Stanley's Keith Weiss, the biggest sticking point wasn't the miss on revenue or guidance, but rather the net new annual recurring revenue (NNARR). Despite an 11% beat versus consensus – even better than the average ~8% beat seen over the past year – the figure didn't quite meet the buy-side's elevated hopes, especially with the stock trading at a steep 50x EV/CY27 free cash flow.
However, Weiss, who ranks among the top 2% of Street stock pros, believes that despite CrowdStrike being 'undeniably an expensive stock,' there's a compelling case for renewed 30%+ free cash flow growth. The company is gaining momentum as a 'leading consolidator' in the cybersecurity space, with nearly half its customers now using six or more modules and a strong uptake of Falcon Flex contracts, which have grown sixfold year-over-year. Demand remains solid, with generative AI expanding both the threat landscape and the need for advanced security tools – areas where CrowdStrike's Charlotte AI is seeing 'strong traction.' Finally, margins are trending higher, with Q1 operating margins beating expectations and management now guiding to over 30% FCF margins by fiscal 2027.
All told, Weiss sees enough upside to bump his price target from $455 to $490. Still, with shares already running hot, that implies just a modest 5% upside from current levels. Weiss' rating stays an Overweight (i.e., Buy). (To watch Weiss's track record, click here)
Elsewhere on the Street, the stock garners an additional 28 Buys, 8 Holds and 1 Sell, for a Moderate Buy consensus rating. However, the $471.06 average target implies the stock is currently fully valued. (See CrowdStrike stock forecast)
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