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Here's our initial take on CrowdStrike's (NASDAQ: CRWD) fiscal 2025 fourth-quarter results.
Key Metrics
| Metric | Q4 FY24 | Q4 FY25 | Change | vs. Expectations |
|---|---|---|---|---|
| Revenue | $854.3 million | $1.06 billion | +25% | Beat |
| Earnings per share (adjusted) | $0.95 | $1.03 | +8.42% | Beat |
| Net new ARR | $281.9 million | $224.3 million | +8% | n/a |
| Free cash flow | $283 million | $239.8 million | -15% | n/a |
Strong Growth, but It's Decelerating While Sales Expense Rises
CrowdStrike reported its second quarter of operating results since the short-term operating outage it experienced in July 2024 that put millions of its customers' devices out of operation for, in some cases, multiple days. What the company reported in its fiscal 2025 fourth quarter (ended Jan. 31, 2025) was similar to what we saw in the prior one: solid growth, but some signs it is coming at a higher cost than before.
A few metrics that stood out as being less impressive than in the past include subscription gross margin falling to 77% in Q4 (80% on an adjusted basis) versus 78% (81% adjusted) in the first and second quarters of the year. Typically, CrowdStrike has been able to raise its margins, so this small drop bears watching. CrowdStrike's operating results also worsened, with it reporting an $85 million operating loss, compared to $30 million in operating income in last year's Q4. It also reported a net loss on a GAAP basis, of $92 million, versus $54 million in GAAP net income in the year-ago quarter.
Cash flows also worsened in the quarter, with operating cash flow relatively flat at $346 million (about $1 million lower) and free cash flow falling $43 million in the quarter. For the full year, there was a similar weakening of its operating results, while its full-year cash flows improved.
What's the likely culprit here? Looking at the operating statement, sales and marketing expenses were up sharply, increasing 41% -- $119 million -- in the fourth quarter, and up $383 million for the full year. This happened as the company's net new growth continued to slow, a pattern that emerged in the third quarter. Net new annualized recurring revenue, or ARR, was $224 million, down 15% from last year.
In other words, CrowdStrike is still growing, but it's having to work -- and spend -- more for that growth than in the past.
Immediate Market Reaction
CrowdStrike shares were trading down close to 7% in after-hours trading on Tuesday early in management's call with investors. CrowdStrike did "beat" on the top and adjusted bottom lines, but its weakening cash flows and operating expenses, tied to increased sales and marketing expenses, along with guidance for about 21% revenue growth in this fiscal year both, are playing a role with this. Simply put, CrowdStrike's stellar economic results, while still very impressive, aren't quite as stellar as in past periods.