Tag: Inc. (CRWD)

Why CrowdStrike and Fortinet Could Be September's Top Performers

Posted on by The INO.com Team

August was a wild ride for the S&P 500, marked by sharp swings that kept investors on their toes. After a sharp 6.1% drop in the first three days, the large-cap benchmark managed to rebound, closing the month with a 2.3% gain. The S&P 500 finished August at 5,648.40, just shy of its record high from mid-July.

Surprisingly, the so-called “Magnificent Seven” stocks that have driven much of the market’s momentum this year, didn’t top the gainers list. Instead, two cybersecurity giants, CrowdStrike Holdings, Inc. (CRWD) and Fortinet, Inc. (FTNT), took the spotlight. With their recent performance, there's an expectation that these companies could be September’s top performers. So, what’s fueling their rally?

CrowdStrike’s Rebound from Its Global-Outage-Induced Slump

July 19 was a tough day for CrowdStrike investors. A software update from the company led to a major IT outage that affected some of its biggest clients, including airlines and banks, causing an estimated $5.4 billion in losses. This sparked fears that the brand damage could hurt CrowdStrike's future business.

As a result, CRWD stock took a hit, plunging 36% to a low of $218 by early August. It was the second-worst performer in the S&P 500 during July. However, the company managed to turn things around in August, with its stock climbing 20% for the month to rank as the index’sc.

Investors were relieved to see that the fallout from the outage wasn't as severe as initially feared. When the company reported earnings, it did lower its guidance but reassured investors that customers still wanted to do business with it.

In the second quarter, CRWD generated $963.87 million in revenue, up 32% year-over-year, beating the high end of management's forecast. Perhaps it suggests the global outage in July had a minimal financial impact, especially since it occurred just two weeks before the quarter’s end. However, for fiscal 2025, the company adjusted its full-year revenue forecast slightly downward to a range of $3.89 billion to $3.90 billion, from the previous $3.98 billion to $4.01 billion. Despite this, the new forecast still indicates a healthy 27.5% growth from fiscal 2024, which is encouraging for investors.

On the bottom line, its non-GAAP attributable net income came in at $260.76 million or $1.04 per share, reflecting an increase of 44.9% and 40.5% year-over-year, respectively. Despite the challenges, the company’s long-term outlook remains promising, with a goal to reach $10 billion in annual recurring revenue (ARR) by fiscal 2031. This ambitious target represents a potential 159% growth over the next six years. Moreover, CrowdStrike's introduction of “commitment packages” for customers is expected to positively impact the net new ARR.

Analysts like Stephen Bersey remain optimistic about CrowdStrike’s future and believe that “the bad news is behind us.” In this view, “CrowdStrike’s native-AI design gives it a structural competitive advantage and places it ahead of peers and leverages AI-driven growth.” With that said, CRWD’s 20% gain in August could be just the start of a continued recovery in September.

Fortinet’s Strong Comeback Reverses Six-Month Downtrend

Fellow cybersecurity company, Fortinet’s impressive rebound in August has been a breath of fresh air for investors who were reeling from its previous billings miss. After a robust earnings report that exceeded expectations, the cybersecurity giant made a strong comeback reversing a six-month downtrend, which sent its stock soaring as much as 28% on that day.

The company's strong market position has translated into an impressive financial performance. In the second quarter of 2024, FTNT’s revenues increased 10.9% year-over-year to $1.43 billion, driven by strong growth in services revenues. Its non-GAAP net income amounted to $439.90 million and $0.57 per share, indicating an increase of 46.4% and 50% year-over-year, respectively.

Building on this quarter’s momentum, Fortinet projects third-quarter revenues between $1.45 billion and $1.51 billion, alongside billings of $1.53 billion to $1.60 billion. Shares of FTNT have already surged more than 30% year to date, catching the attention of both investors and analysts. With the cybersecurity sector booming and Fortinet's continued innovation in security solutions, the company is well-positioned to capitalize on emerging trends.

Fortinet’s strength lies in its robust market position and relentless focus on innovation. The company's FortiOS operating system and Security Fabric architecture provide a seamless and integrated security solution that meets the complex demands of today's digital landscape. Moreover, FTNT’s commitment to innovation is evident in its development of advanced technologies like AI-powered FortiGuard Labs and the GenAI assistant, FortiAI, which streamline threat investigation and network management.

For 2024, FTNT anticipates revenue between $5.8 billion and $5.9 billion, with a non-GAAP operating margin of 30% to 31.5%. Non-GAAP earnings per share are projected to fall between $2.13 and $2.19. As the focus on digital security intensifies, Fortinet’s cutting-edge solutions are well-positioned to maintain its leadership in the industry.

Bottom line

Cyber-attacks are becoming more frequent and severe, with a 30% year-over-year increase in weekly attacks on corporate networks in the second quarter of 2024 and a 25% rise compared to the previous quarter. On average, organizations now face 1,636 attacks per week, highlighting the relentless and sophisticated nature of today's cyber threats.

As businesses increasingly prioritize digital security, the cybersecurity market is projected to soar, reaching $500.70 billion by 2030, growing at a CAGR of 12.3%. This continued expansion in the cybersecurity sector could create a promising environment for CRWD and FTNT, making them attractive additions to your portfolio.

Is CrowdStrike's (CRWD) Stock Drop an Opportunity for Investors?

Posted on by The INO.com Team

CrowdStrike Holdings, Inc. (CRWD) experienced a steep decline in its stock price last Friday following a software update that triggered widespread technical outages. This mishap couldn't have come at a worse time for the company, as it is about to close its fiscal quarter at the end of this month, a period when software companies typically finalize major deals. With its shares having surged nearly 34% this year before the drop, CrowdStrike faces intense pressure as it approaches its July-quarter results.

For investors, mere expectation-matching results won't suffice; they will be looking for a strong performance that exceeds expectations and prompts an upward revision in forecasts.

On July 19, a faulty security update from CrowdStrike caused a global tech outage, affecting millions of Windows devices. Social media was abuzz with images of the infamous "blue screen of death," indicating system crashes. CrowdStrike clarified that the issue wasn’t a security breach or cyberattack but a flaw in the update affecting Microsoft Windows systems.

Despite a quick fix, the damage was done, with the stock plummeting over 20% since the incident. Microsoft Corporation (MSFT) reported that about 8.5 million devices were affected, representing less than 1% of all Windows devices. However, the outage had significant repercussions, particularly in sectors that provided essential services like hospitals, banks, and airports. This sharp decline in CRWD’s stock suggests investors are concerned about the long-term impact on CrowdStrike's position in the fiercely competitive cybersecurity market, where even minor missteps can be costly.

There's also concern about the potential financial fallout from the incident, including compensation for affected clients. While CRWD suffered, shares of its competitor Palo Alto Networks Inc. (PANW) rose by 2.8%. It's a central black eye for CrowdStrike, which is now a household name for the wrong reasons.

"This situation could have serious implications for CrowdStrike's business, particularly as it seeks to expand adoption among large enterprises to drive the next phase of growth," said Redburn analyst Nina Marques. “Furthermore, it could have impact on market-share shifts as customers seek alternative security solutions,” she added.

CrowdStrike Gets a Downgrade

Analysts are concerned that the disruptions caused by CrowdStrike's software update will delay new deals. Guggenheim's John DiFucci downgraded the stock from Buy to Neutral and stated that the global chaos caused by CrowdStrike, even if temporary, will likely negatively affect its business. He believes rebuilding its reputation might take time and could affect new business signings in the short term.

Similarly, BTIG's Gray Powell downgraded the stock to Neutral, stating that “the outage may have an impact on new customer wins and create deal delays.” He added that while the issue wasn't a security breach, the disruption violated a key principle for security vendors and might lead to demands for larger discounts or credits from existing customers.

What to Expect From CrowdStrike’s Next Earnings Report?

With the recent software mishap causing quite a stir, investors and analysts will closely monitor CrowdStrike’s following earnings report for signs of recovery. Last month, the company released its first quarter results for fiscal year 2025, which ended April 30, 2024, beating the analyst estimates for revenue and EPS.

The company reported a revenue of $921 million, a 33% year-over-year increase, against a guidance of $906 million. For the first quarter, CRWD’s earnings per share was $0.93, well above the consensus estimate of $0.89, and its revenue was higher than the analysts’ estimates by $16.21 million.

For the second quarter, the company forecasts revenue between $958.30 million and $961.20 million, with an EPS estimated at $0.98 to $0.99. Additionally, its non-GAAP income from operations is anticipated to be between $208.3 million and $210.5 million.

Meanwhile, Street expects CRWD’s EPS for the second quarter (ending July 2024) to increase 33.3% year-over-year to $0.99. Its revenue for the ongoing quarter is expected to reach $961.08 million, reflecting a 31.4% growth year-over-year. Moreover, the company surpassed consensus EPS estimates in each of the trailing four quarters, which is excellent.

For the fiscal year 2024, the company’s revenue and EPS are expected to grow 30.9% and 29.7% from the prior year to $4 billion and $4.01, respectively.

Bottom Line

Investors reacted strongly to the recent software mishap, causing CRWD’s stock to drop more than 11% on Friday. However, this reaction might be exaggerated. The incident, while disruptive, wasn’t a breach of CrowdStrike’s security and seems to be a one-off issue rather than a sign of ongoing vulnerabilities. As the company’s CEO, George Kurtz, pointed out, the problem stemmed from a botched update, causing significant but manageable disruptions. While resolving the issue could take several days, it’s unlikely to escalate further.

Analysts’ concerns are valid, but the company’s strong revenue growth and expanding opportunities “across Mexico, Brazil, and the broader Latin America market,” where CrowdStrike recently partnered to spread its Falcon platform, offer compelling reasons for optimism. The rise in e-crime in Latin America presents a significant revenue opportunity for CrowdStrike. Plus, S&P 500 inclusion means that plenty of index-fund holders will indirectly invest in CRWD.

The stock’s high forward non-GAAP P/E ratio of 65.84x, compared to the industry average of 24.89x, might deter some investors, but short-selling CrowdStrike could be risky. The stock will likely rebound and continue rising as long as the growth narrative holds.

Moreover, Mizuho analyst Jordan Klein even views the current dip as a chance to buy, likening it to a “one-time discount sale.” So, while the recent dip in CRWD might be unsettling, it presents a potential buying opportunity for long-term investors seeking quality exposure in the cybersecurity sector.