HSBC downgrades CrowdStrike on limited near-term growth visibility

Investing.com -- HSBC downgraded CrowdStrike Holdings Inc (NASDAQ:CRWD ) to “hold” from “buy” on Thursday, citing limited near-term visibility on revenue growth, even after the cybersecurity firm reported better-than-expected quarterly results.

CrowdStrike's revenue for the third quarter of fiscal 2025 grew 29% from a year earlier, crossing $1 billion for the first time. The results exceeded Wall Street expectations, driven by seasonal demand and incentives introduced after a July IT outage. Operating profit and earnings per share also beat forecasts, though the operating margin fell slightly compared to the previous year.

RBC Capital Markets on Tuesday noted that CrowdStrike management executed well following the July outage. The incident led to near-term challenges but "should not impact customer lifetime value (LTV)"

However, CrowdStrike’s fourth-quarter outlook signals a slowdown, with revenue growth expected to ease to 22.1% year-over-year and non-GAAP earnings per share forecast to drop 11%. This reflects weaker demand for extended contracts and additional products, according to HSBC.

“Given the sharp decline in the net new ARR in 3QFY25 and limited visibility of any near-term reacceleration in the trend, we now take a cautious approach given the potential for this weakness to translate in revenue deceleration,” HSBC analyst said.

HSBC raised its price target for CrowdStrike to $347 from $339, citing stronger earnings projections. However, the brokerage downgraded the stock, citing its high valuation, trading at 94 times estimated 2024 earnings, compared to a sector average of 37 times, which leaves less scope for further gains.

CrowdStrike shares have rallied significantly since August when HSBC upgraded the stock following the IT outage, but growth concerns are now dampening investor sentiment.

Source: Investing.com