By Wallace Witkowski, MarketWatch
CrowdStrike Holdings Inc. fielded praise from analysts Friday after the cybersecurity company reported a strong quarter and outlook, but a drop in the stock from recent highs and a looming post-IPO lock-up period expiration may make the stock volatile in the short term.
CrowdStrike /zigman2/quotes/212513426/composite CRWD +0.90% shares closed down 3.9% at $50.89 Friday, having traded up as much as 4% earlier in the session. The ETFMG Prime Cyber Security ETF /zigman2/quotes/207892345/composite HACK -0.88% rose 0.4% on Friday.
Of the 20 analysts who cover CrowdStrike, 12 have overweight or buy ratings, seven have hold ratings, and one has a sell rating. Of those, three analysts raised their price targets while four lowered theirs, resulting in an average price target of $78.40, down from the previous day’s $79.90, according to FactSet data.
Late Thursday, CrowdStrike’s third-quarter results and fourth-quarter outlook topped Street estimates with annual recurring revenue, or ARR, nearly doubling from a year ago.
As of Friday’s close, CrowdStrike shares were nearly 50% above their June IPO pricing, a far cry from the company’s last earnings report in September, when shares were 155% above the IPO price. Shares plunged 33% in the past three months, as the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.16% gained 5.6%.
Pressure on the stock may not be over as the post-IPO lock-up period on CrowdStrike’s stock expires on Monday, with about 183 million of the company’s 204 million shares eligible for sale.
JMP Securities Erik Suppiger, who has a buy rating and a $90 price target, said he expects the stock “may experience modest volatility around the expiration of its IPO lock-up, but we believe the stock will trade higher as we move beyond the 12/9/19 lock-up release.”
Mizuho analyst Gregg Moskowitz, who has a buy rating and a lowered $77 price target, said “shares could remain under pressure near-term,” but “the stock will likely show a strong rebound over the next several months.”
What promises to sustain the stock past the lock-up expiration is the company’s impression subscription growth, said Jefferies analyst Brent Thill, who has a hold rating and a $61 price target.
Thill noted that CrowdStrike’s ARR, a cloud-software metric that follows subscription based revenue expectations, “grew an impressive 97% in the fiscal third quarter, following 104%, 114%, 121%, and 124% in the four prior quarters.”
“For instance, the percentage of all subscription customers that have adopted four or more cloud modules—a key metric—has grown from 30% in fiscal 2018 to 47% in fiscal 2019 and to a record 50%+ this quarter,” Thill said. “The company also disclosed that 30% of customers have 5+ modules. This continues to be a strong indicator of the stickiness (and future profit) of Crowdstrike’s platform.”
Instinet analyst Christopher Eberle, who has a buy rating and a $71 price target up from $65, said CrowdStrike “will continue to disrupt the security software space, not just endpoint security, as its modern cloud native platform acts as the foundation for its high-velocity, friction-less, cross-selling business model.”
“We view recent concerns on competitive pressures from consolidation in the space as unwarranted and expect CRWD’s results to continue to speak for themselves,” Eberle said.