Crowdstrike: Solid Path to $10 Billion ARR
Endpoint and emerging products accelerating as Falcon Flex drives platform consolidation and share gains
CrowdStrike is now becoming a key asset to own because of how it is both winning in the AI space, but also because the proliferation of AI products warrants more demand for its own suite of cybersecurity products.
As a result, we saw an acceleration in the endpoint product segment for CrowdStrike, due to AI-driven demand being a catalyst for the segment.
Falcon Flex is being validated due to the accelerating ARR growth and growing module adoption, signifying that it is indeed helping accelerate platform consolidation for CrowdStrike.
There are multiple idiosyncratic drivers for upside for CrowdStrike to its FY2031 target of $10 billion ARR and thus, the company is deserving of its premium valuation today.
3Q broad-based strength
CrowdStrike revenue grew 22.2% to $1.23 billion, 1.6% ahead of consensus expectations.
Ending ARR accelerated from 20% y/y growth last quarter to 23% y/y growth this quarter, with total ending ARR at $4.92 billion.
Net new ARR came in at $265 million, up 73% y/y, beating the guidance of more than 10% growth y/y.
Operating income came in at $265 million, 1.6% ahead of consensus expectations, while the operating margin of 21.4% is in-line with expectations.
The outperformance for operating income came due to strong revenue outperformance, gross margin improvement, and sales execution.
CrowdStrike remains committed to investing in growth while delivering profitability.
EPS came in at $0.96, 2.1% ahead of expectations, while free cash flow came in at $296 million, 7% ahead of expectations.
Guidance
With the strong 3Q outperformance, strong AI-driven demand environment, record pipeline and consolidation momentum, management is confident about delivering and executing for 4Q and FY2027.
Management now expects low to mid-teen sequential net new ARR growth from 3Q to 4Q, bringing total ARR growth for FY2026 to 23% y/y growth.
Net new ARR growth for the second half is now expected to be at least 50% growth y/y, up from the 40% guided.
Furthermore, CrowdStrike expects FY2027 net new ARR growth of at least 20%.
This is significant as this is off the higher FY2026 run-rate and thus, faces tough compares compared to what we have seen for FY2026.
FY2026 revenue growth was revised up from 20.8% y/y growth to 21.4% y/y growth.
FY2026 operating margin was revised up from 21.4% to 21.6%.
FY2026 EPS was revised up by 1.4% to $3.71.
CrowdStrike CEO George Kurtz stated that business continued to “accelerate” this quarter.
Management also cited seeing “momentum” in the business.
Last quarter, CrowdStrike achieved its re-acceleration 1 quarter earlier than expected.
This quarter, CrowdStrike continued to execute well by continuing this trend.
CrowdStrike saw collective ARR acceleration across its emerging and fast growing products like Cloud, Identity and Next-gen SIEM.
Perhaps more significantly, management also pointed to an acceleration to the endpoint business.
Endpoint business acceleration
The endpoint business accelerated in 3Q due to what management called “AI-driven demand”.
This AI-driven demand was due to endpoint increasingly becoming the risk point for companies in the new agentic world.
The endpoint is described as being the epicenter of human and non-human interaction with AI.
As much of AI is now being pushed to the edge as more employees are deploying new applications into their machines, more large enterprises are seeing the need to replace legacy endpoints with CrowdStrike’s endpoint solutions.
With 50% of the endpoint market still legacy solutions, CrowdStrike has a long runway in terms of legacy displacement for further endpoint growth.
Management also emphasized significant competitive wins against both key competitors like Microsoft and SentinelOne.
It has been a few years since we saw a significant catalyst that will drive growth for the endpoint business.