To The Moon

$CrowdStrike Holdings, Inc.(CRWD)$ Fiscal Q2 2026 (ended July 31, 2025) showed mixed results, with core financial metrics broadly exceeding expectations. However, the shift from profit to loss coupled with weak Q3 revenue guidance sparked market concerns. Despite lingering effects from the July outage incident, the company achieved 21% year-over-year revenue growth, surpassing market expectations.

This quarter delivered strong overall performance, with key highlights including accelerated AI-driven platform adoption and record-breaking free cash flow. Potential concerns stem primarily from GAAP losses driven by outage-related costs and potential uncertainty from near-term transaction delays, though these do not undermine the company's long-term growth trajectory.

Core Financial Information

1. Revenue Metrics: Total revenue reached $1.17 billion, up 21% year-over-year and approximately 6% quarter-over-quarter. Subscription revenue accounted for 94% of total revenue, reaching $1.103 billion, a 22% increase year-over-year. This growth was primarily driven by AI innovations on the Falcon platform and customer consolidation demands, exceeding market consensus expectations (approximately $1.15 billion). It underscores the company's leadership in cybersecurity while also revealing relative weakness in professional services revenue, potentially signaling a further shift toward a subscription-based business model.

   

2. Annual Recurring Revenue (ARR): Full-year ARR reached $4.66 billion, up 20% year-over-year; net new ARR added $221 million, exceeding internal expectations. This metric reflects sustainable customer retention and expansion dynamics, particularly driven by strong growth in cloud security, identity protection, and SIEM modules (combined ARR exceeding $1.56 billion, up over 40% YoY). While slightly exceeding market consensus, signs of decelerating quarter-over-quarter growth suggest recent outage incidents temporarily impacted new signings.

   

   Profitability (Non-GAAP EPS): Earnings per share reached $0.93, marking a 26% year-over-year increase and surpassing the analyst consensus estimate of $0.83. Driving factors included enhanced operational efficiency and cost control. Despite approximately $35.7 million in additional costs from outage incidents, the Non-GAAP operating margin reached 22%, demonstrating the robustness of the company's profit model. However, a net loss of $77.6 million was recorded on a GAAP basis, highlighting the potential risks associated with non-recurring expenses.

3. Cash Flow Performance: Free cash flow reached $284 million, representing 24% of revenue and growing approximately 15% year-over-year. This figure was driven by robust operating cash flow ($333 million) and efficient capital expenditure management, exceeding expectations. It reinforces the company's financial health while signaling enhanced flexibility for future share repurchases or mergers and acquisitions.

4. Module Adoption Shifts: The average number of modules per customer continues to rise, with over 1,000 customers adopting the Falcon Flex model and an average ARR exceeding $1 million. Cloud/Identity/SIEM modules grew by over 40%, indicating accelerated signs of business structure transformation toward platformization. This shift exceeds market expectations and may become a long-term growth engine.

Guidance

Management expressed optimism about the outlook for the next quarter and full year during the earnings call, though guidance remained slightly conservative. The company expects Q3 revenue to be $1.208 billion to $1.218 billion (representing approximately 19%-20% year-over-year growth), with Non-GAAP EPS of $0.93 to $0.95; Full-year revenue guidance was raised to $4.75 billion to $4.81 billion (representing approximately 20% year-over-year growth), with ARR growth projected to exceed 22%. The company aims to reach $5 billion in ARR by the end of the fiscal year and $10 billion by FY2031.

This guidance leans conservative, likely aiming to cushion uncertainty following the outage while leaving room for potential upside, given the season's better-than-expected performance and robust AI demand.

A cautiously pragmatic statement: CFO Burt Podbere emphasized "execution exceeding expectations," attributing the Q3 slowdown to a "temporary customer digestion period" while sidestepping assessments of the long-term impact of the outage. CEO George Kurtz, however, boldly proclaimed that "AI is reshaping cybersecurity," attempting to counter short-term headwinds with a technological narrative.

Investment Highlights

Sustainable long-term growth avenues include AI-driven Falcon platform integration and cloud security/SIEM/identity protection modules, which already contribute over one-third of ARR and expand at over 40% growth—mirroring Palo Alto Networks' transition from firewalls to platforms. These benefit from structural demand driven by global digitalization and AI threats. Conversely, businesses reliant on sentiment and short-term trends may include recovery growth following outage incidents. While this drove Q2 resilience, it may prove a one-off rebound unless converted into lasting customer loyalty. We believe the company must guard against such incidents eroding brand trust over time, but rising AI penetration will drive sustainable trends.

Management's overall strategy is highly effective, particularly in AI innovation and platform consolidation, which warrant amplified investment. For instance, Falcon Flex's milestone of over 1,000 customers demonstrates horizontal expansion potential. However, a misstep was the lack of redundancy in content publishing processes prior to the outage, now improved through multi-loop testing—signaling the company's shift toward a more resilient platform architecture. Signals indicate further horizontal expansion, such as enhancing SIEM real-time processing through the ONEM acquisition and investing in AI SOC agents (85% quarterly growth), reflecting a shift from single-product offerings to ecosystem development. Management is advised to expand partner rebate programs (impacting $10-15 million in Q3) to accelerate market share capture.

Current valuations imply high growth expectations. Based on EV/Sales (8.5x), this implies a 25%+ CAGR over the next three years, significantly higher than $Palo Alto Networks(PANW)$ (7.2x), $Zscaler Inc.(ZS)$ (6.8x), and $Fortinet(FTNT)$ (10x). This pricing reflects sustained ARR expansion exceeding 20%.

Market divergence lies between AI optimists and risk pessimists. We believe the undervaluation may stem from cloud module penetration rates. Comparing it to the OTA industry, the platform effect resembles that of $Airbnb, Inc.(ABNB)$ relative to $Booking Holdings(BKNG)$ CrowdStrike's cross-selling of modules (over 8 modules with 80% transaction growth) is underestimated, while legacy system competitors like $Expedia(EXPE)$ (e.g., $Splunk(SPLK)$ ) are being displaced; Compared to $Trip.com Group Limited(TCOM)$ 's regional expansion, CrowdStrike's global AI positioning may offer greater upside potential. However, valuation could compress if ARR acceleration falls short of expectations.

Key Tracking Variables

ARR growth: Can H2 year-over-year growth rebound to 22%+ (currently 20%)? Otherwise, the ARR target of 10 billion will be invalidated.

GAAP Profitability Inflection Point: After the conclusion of downtime compensation payments (expected in Q4), the loss rate must narrow to within 5%.

AI Product Penetration Rate: Should Falcon AI module coverage (currently undisclosed) exceed 30%, it could serve as a valuation catalyst.