CrowdStrike Q3 2022 Update

CrowdStrike (CRWD) reported their Q3 earnings earlier this week. Results looked good overall. Revenue grew 53% year-over-year to about $581 million. Total annual recurring revenue (ARR) was up 54%, although net new ARR (basically, new business) came in at $198 million, which was a 16.5% increase from a year ago. That was below the company's expectations.

Management explained the slowdown in net new ARR as a macroeconomic concern, with companies tightening spending in fear of difficult conditions ahead. CrowdStrike described it as more of a delay in sales cycles and phased subscription start dates, rather than a loss of deals. For example, management cited an 11% increase in days to close deals. This indicates to me a hesitancy to spend right now by customers, instead of a decline in CrowdStrike's competitive position.

In fact, all other metrics continue to look good. The firm added almost 1,500 new subscription customers, a 44% increase year-over-year. Net revenue retention was 126%, well above their target 120% figure. Guidance for Q4 indicates a 45% revenue increase. Management continues to target $5 billion in ARR by the end of 2026.

CrowdStrike continues to track pretty closely to the model and I see no reason to modify the $222 fair value target.