Market news and strong results from cybersecurity company CrowdStrike.

Market News

US equity markets moved higher last night following the release of soft economic data: S&P 500 (+0.4%); Nasdaq (+0.4%). The ADP report showed private payrolls rose by 177k in August. Treasuries edged up, with the 10-year currently yielding 4.10%. This morning in Asia, markets were mixed: Nikkei 225 (+0.9%); Hang Seng (-0.6%); Shanghai Composite (-0.5%). The FTSE 100 is currently little changed at 7,474. Stocks trading ex-dividend this morning include Glencore (5.37%), Croda (0.84%), IHG (0.63%), and Antofagasta (0.64%).

China’s manufacturing PMI rose to 49.7, slightly more than expected but remaining in contractionary territory. The services gauge dipped to 51, a little worse than forecast. Bloomberg Economics said the unexpected pick-up in the manufacturing index points to signs of stabilisation, although the property sector and weak demand continue to knee-cap any wider recovery. The yuan weakened.

Japan’s industrial production fell a more-than-expected 2% in July from a month earlier, an indication that export demand may be ebbing. Subdued output indicates the economy will shrink in this quarter, Bloomberg Economics said. The BOJ needs more time before turning toward tightening policy, given the lack of conviction for achieving the BOJ's 2% inflation goal in a stable manner.

UK officials should consider lifting the BOE’s inflation target from 2% once rampant price growth is brought under control, according to Karen Ward, an adviser to Chancellor Jeremy Hunt. The CBI said Britain’s year-old private sector slump will probably continue for at least the next three months, as lower demand and cost pressures prompt companies to cut investment. Sterling currently trades at $1.2704 and €1.1657.

China’s top steelmaker offered cautious optimism, saying demand will get better in the second half. Baoshan’s hopeful prognosis contrasts with more downbeat forecasts from Capital Economics and other mills. Brent Crude is $85.10 a barrel, while moved up to $1,945 an ounce.

Source: Bloomberg

Company News

Last night, CrowdStrike Holdings released strong results for the second quarter of its financial year ended 31 January 2024 and raised its guidance for the full year. In response, the highly-rated shares moved up by 2% in after-hours trade.

CrowdStrike is a US-listed cybersecurity technology company with annual revenue of more than $2.2bn. The CrowdStrike Falcon platform protects customers against cyber-attacks across on-premise, virtualised, and cloud-based environments running on a variety of endpoints such as laptops, desktops, servers, virtual machines, and Internet of Things devices.

The CrowdStrike Threat Graph aggregates security data across its customer base, using advanced AI techniques to create a security solution able to constantly adapt to new threats and attacks. As the company grows, its access to security data will also grow, enhancing its competitive position.

The business is well placed to benefit from secular trends, such as digital and security transformation, cloud adoption, and a heightened threat environment, which the current geopolitical uncertainty has clearly exacerbated. The group recently released the CrowdStrike 2023 Threat Hunting Report, which revealed a massive increase in identity-based intrusions and growing expertise by adversaries targeting the cloud. However, at present, Cloud Security Spend is only around 1% of Cloud IT Spend, well below what is considered necessary.

The group offers more than 20 cloud modules via a software as a service (SaaS) model that spans multiple large security markets, including corporate workload security, security and vulnerability management, managed security services, IT operations management, and threat intelligence services. The group continues to add new modules organically and via M&A. The success of the group’s platform strategy and its growing brand leadership have led to a groundswell of customers turning to CrowdStrike as their trusted security platform of record.

In the three months to 31 July 2023, total revenue grew 37% to $732m, a touch ahead of the company’s guidance range of $717m-$727m and the market forecast of $724m. Subscription revenue grew by 36% to $690m, while professional services grew 44% to $42m. Annual Recurring Revenue (ARR) increased 37% to $2.93bn as of 31 January, of which $196m was added in the quarter.

The company enjoyed continued strong customer adoption for its core products in addition to the growing success of newer product initiatives. New Falcon Cloud Security innovations were unveiled, including ‘1-Click XDR’ to automatically identify and secure unmanaged cloud assets. Gross retention rates remain high, while the number of subscription customers that have adopted five or more modules, six or more modules, and seven or more modules increased to 63%, 41%, and 24%, respectively, as of 31 July.

The business has strong operating leverage, with subscription gross margin moving up from 78% to 80% in the quarter. The group achieved its target model range for operating margin for the first time in its history, well ahead of its planned timeline. The group achieved vastly improved operating profitability, rising from $87m to $156m. EPS rose from 36c to 74c, well above the 56c market forecast.

The group generated free cash flow of $189m (up 39%) and ended the quarter with cash and cash equivalents of $3.17bn.

CrowdStrike has raised its guidance for FY24, with the estimates reflecting the group’s technology advantage and strong industry tailwinds combined with a pragmatic view of current macroeconomic conditions. Revenue is now expected to be $3,031-$3,043, versus $3,001 - $3,037 previously. EPS guidance has been raised from 232c-243c to 280c-284c.

Source: Bloomberg