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Crowdstrike and Snowflake share prices slump on weak guidance

Beleaguered cybersecurity stocks endured further pain as CrowdStrike and Snowflakes Q4 earnings guidance sent their stocks plummeting after Q3 earnings. Okta, however, matched year-over-year gains with raised Q4 guidance, and its stock gained over 12% in after-hours trading.

- Disappointing guidance sends CrowdStrike and Snowflake down post-earnings

- However, Okta rose 12.6% in after-hours trading on its positive profit forecast

- Simplify Volt Cloud and Cybersecurity Disruption ETF offers exposure to all three stocks

It has been a challenging year for cybersecurity stocks like CrowdStrike [CRWD], Snowflake [SNOW] and Okta [OKTA]. Okta has struggled the most, having seen its share price decline 76.3% in the year to 30 November, though it rose 5.75% over the past two weeks. Snowflakes share price has fallen 57.8% year-to-date, while CrowdStrike is down 42.5% over the same period.

As consumer spending tightens in the face of rising inflation, Okta is expanding its reach into the public sector, recently unveiling ‘Okta for US Military’, which the company describes as a purpose-built identity environment” for the US Department of Defence. The news, announced on 15 November, accounts for Okta’s share price gains in the time since.

Snowflake unveiled a security partnership with Orca Security via its Powered by Snowflake programme on 10 November. The partnership opens exciting new ways for security teams to protect their cloud environments at scale,” according to Omer Singer, head of cybersecurity strategy at Snowflake.

Also last month, CrowdStrike received recognition at the CRN Tech Innovator Awards and in Frost & Sullivans 2022 Cloud-Native Application Protection Platform report.

Crowdstrike, Snowflake and Okta’s earnings results

Crowdstrikes third quarter results for 2023, announced 29 November, revealed that revenue increased 52.8% year-over-year to $580.9m, beating analyst expectations by 1.2%, according to the Financial Times. Non-GAAP EPS came in 29.1% above analyst expectations, rising 135.3% year-over-year from $0.17 to $0.40.

Snowflakes results, announced after markets closed on 30 November, reported non-GAAP net income of $0.11 per diluted share, nearly tripling year-over-year and beating analyst forecasts by 175%. Snowflakes revenue increased 67% year-over-year to $522.8m.

However, underwhelming fourth-quarter revenue guidance of $535m to $540m, compared to analystsexpected $553m, sent Snowflakes shares down 5% in extended trading after the company posted results on Wednesday.

The most positive set of results came from Okta, which saw revenues grow 37% year-over-year to $481m, beating analyst estimates of $465.34m. Okta broke even through the quarter with Non-GAAP net EPS of $0.00, an improvement on analyst expectations of -$0.24. Crucially, Oktas Q4 revenue and earnings guidance, of $488m to $490m and $0.09 to $0.10, respectively, were well above analyst expectations, sending Okta shares up 12.6% in after-hours trading.

Cybersecurity stocks face headwinds

George Kurtz, CrowdStrikes co-founder and CEO, acknowledged the fact that CrowdStrikes annual recurring revenue (ARR) growth was disappointing, blaming “increased macroeconomic headwinds [which] elongated sales cycles with smaller customers and caused some larger customers to pursue multi-phase subscription start dates”.

Morgan Stanley analysts were unfazed by Snowflakes results, advising investors that the pullback provides an attractive entry point to accumulate shares in a premier SaaS security franchise”. Needham analysts were similarly upbeat, but Stifel analyst Brad Reback said in a note that the magnitude of the 3Q ARR miss … was clearly much worse than anticipated”. He downgraded CrowdStrike from buyto hold.

Todd McKinnon, CEO and co-founder of Okta, said the company remains focused on go-to-market execution, spend efficiency measures, and increasing profitability” as it navigates an evolving macro environment”.

Despite the challenging short-term conditions cybersecurity companies face, the same Frost & Sullivan report that drew attention to CrowdStrike forecasts the cloud-native application protection platform (CNAPP) market to grow to $5.41bn by 2026 at a compound annual growth rate of 25.7%.

Fund in focus: Simplify Volt Cloud and Cybersecurity Disruption ETF

The Simplify Volt Cloud and Cybersecurity Disruption ETF [VCLO] holds all three stocks as of 30 November. Crowdstrike is the funds sixth-largest holding with a 4.51% weighting, while Okta is the seventh with 3.26%. Snowflake comes further down the list with a 0.45% weighting.

The fund has fallen 65.2% in the year to 30 November, underperforming the Nasdaq which fell 26.7% over the same period. The funds largest holding, Sonder Holdings [SOND], has fallen 82.25% year-to-date, acting as a drag on its overall performance. The ETF fell 14.2% in the month to 30 November.

Analysts polled by the Financial Times yield a median 12-month price target of $175 for CrowdStrike, implying 48.7% potential upside, compared to 41.6% on the $75.50 median forecast for Okta and 40% on the $200 forecast for Snowflake.

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