Overreaction? CrowdStrike Stock Sinks 8% After Mixed Earnings

CrowdStrike Holdings Inc (NASDAQ:) stock was sinking on Wednesday, one day after the cybersecurity firm released its fiscal first quarter earnings.

Shares were down about 8% at the opening bell to around $450 per share after the firm reported mixed first quarter results with an outlook that some investors initially found disappointing.

The firm generated $1.10 billion in revenue in the fiscal first quarter of 2026, up 20% year-over-year. It was slightly below estimates of $1.11 billion.

The company posted a net loss of $111 million in the quarter, which was down from a $46 million net gain in the same quarter a year ago.

However, the firm generated $185 million in non-GAAP or adjusted net income, or 73 cents per share, which was down 5% year over year. That beat estimates of 66 cents per share in adjusted earnings.

Feeling Effects of Summer 2024 Outage

Back in July of 2024, a faulty update to CrowdStrike’s Falcon software caused some 8 million computer systems using Microsoft (NASDAQ:) Windows to crash. It is considered one of the largest IT outages in history, and that led to billions in losses for its clients, mostly Fortune 500 companies.

CrowdStrike has also been dealing with the event. While it maintained the vast majority of its customers after the outage, about 97%, it has costed millions to address the fallout. Some of those expenses showed up in the first quarter and contributed to the net loss.

Specifically, the company spent $39.7 million, or 16 cents per share, on costs associated with the July 19 incident.

In addition, it had 37% higher stock-based compensation and related employer payroll tax expenses to $271.6 million, accounting for $1.07 per share in earnings, up from 79 cents per share in the same quarter a year ago.

Stock-based compensation is often used at growing companies as a way to reward employees but also save cash. CrowdStrike stock is up about 32% this year, so that’s good for employees. But this year, effective February 1, employer payroll taxes related to employee stock-based award transactions are included as part of stock-based compensation expense. That likely accounted for the increase.

On the bright side, annual recurring revenue (ARR) grew 22% year-over-year to $4.44 billion as of April 30. Of that amount, $194 million was new ARR added in the first quarter. The gross margin for CrowdStrike’s subscription revenue was 77%, roughly the same as it was in the same quarter a year ago.

“We achieved net new ARR and bottom-line results ahead of our expectations and generated record cash flow from operations,” Burt Podbere, CrowdStrike’s chief financial officer, said. Our conviction in net new ARR re-acceleration and margin expansion in the second half of fiscal year 2026 is reinforced by Falcon deal momentum and early expansions, strong competitive win rates and robust pipeline for the second half of fiscal year 2026.”

Disappointing Outlook? Maybe Not

In addition to the mixed earnings, investors were likely initially more concerned about CrowdStrike’s outlook, although it is not entirely clear why.

For Q2, CrowdStrike expects revenue of $1.14 billion to $1.15 billion, which is lower than the $1.16 billion that analysts anticipated. For the full year, revenue is projected to be between $4.74 and $4.81 billion, which is line with estimates at the midpoint.

In terms of earnings, CrowdStrike is anticipating adjusted earnings of 82 cents to 84 cents per share, which is higher than projections of 81 cents per share.

And for the full year, the company actually raised its earnings expectations to a range of $3.44 to $3.56 per share, up from the previous $3.33 to $3.45 per share. Analysts are estimating $3.43 per share in adjusted earnings, so CrowdStrike expects to beat that.

CrowdStrike got a bunch of analyst upgrades, so Wall Street is mostly bullish on the report. The major trepidation investors should have is the valuation. It is sky high with a P/E of 401 and that may be scaring investors away.

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