Wolfe Research says questions around demand drove CrowdStrike weakness

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By Sam Boughedda 

Wolfe Research downgraded CrowdStrike Holdings, Inc. (NASDAQ:CRWD) to Peer Perform from Outperform in a note to clients on Thursday, removing the price target.

Wolfe analysts told investors that CrowdStrike delivered underwhelming F3Q23 earnings with a miss on net new ARR in the quarter and provided guidance for F4Q and FY24 ARR and FCF that were below expectations.

"We were cautious on CrowdStrike headed into the print as our conversations throughout the quarter suggested, and continue to suggest, that the competitive environment is only getting tougher, specifically against the likes of Microsoft, while at the same time, the macro environment deteriorates. Our checks indicate that over the last twelve months Microsoft's offering has significantly improved, leading to the company being invited to almost all EDR bakeoffs, and that there has been a tone change from Microsoft (NASDAQ:MSFT) management in regard to their determination to win the EDR market," wrote the analysts.

The analysts went on to state that while management suggested the weakness is purely a macro issue, Wolfe Research's industry conversations are leading to more questions around the competitive environment as well as the overall demand environment.

"Even after shares traded down 15% the day following the print, our analysis points to the potential for additional negative estimate revisions," they added. "With all of these questions, we struggle to see a near term catalyst that changes the risk-reward equation and our opinion on the stock."