The Ratings Game: CrowdStrike business looks strong but lock-up expiration looms over stock short term

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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 CRWD, -3.89%  shares slipped 1% to $52.44 in late Friday trade, having traded up as much as 4% earlier in the session. The ETFMG Prime Cyber Security ETF HACK, +0.39%  was up 0.5% 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 the Thursday’s close, CrowdStrike CRWD, -3.89% shares were 55% 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 31% in the past three months, as the S&P 500 index SPX, +0.91%  gained 5.7%.

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.