- In 3Q 2025, annual recurring revenue (ARR) increased by 27% year-on-year to $4.018 billion, indicating strong customer retention and long-term commitments.
- Net new annual recurring revenue (NNARR) declined by 31% year-on-year to $153 million, reflecting longer deal cycles and fewer upselling opportunities.
- Management expects NNARR to rebound in the second half of FY2026.
CrowdStrike Holdings, Inc (NASDAQ: CRWD) faced a challenging third quarter in fiscal year 2025 (3Q 2025), marked by a significant decline in net new annual recurring revenue (NNARR), which measures the increase in recurring revenue from new and existing customers.
This quarter was the first full quarter after a CrowdStrike-related IT global outage in July 2024 caused by a faulty update to its software, which led to widespread disruptions across various industries, including banking, healthcare, and air travel.
Despite this, CrowdStrike demonstrated strong execution and operational capabilities during the tumultuous period. Moving forward, the company’s customer retention and expansion is worth monitoring.
CrowdStrike is a leader in cloud-based cybersecurity. The company uses crowd-sourced information to combat cyber threats. Its Falcon platform offers a range of subscriptions and solutions aimed at stopping breaches and providing incident response services.
3Q 2025 Highlights
- Securing Customer Commitments: The company’s annual recurring revenue (ARR), which shows the total value of recurring revenue from subscriptions, increased by 27% year-over-year (YoY) to $4.018 billion, above Wall Street’s at $4.011 billion.
- Slowing Growth in Recurring Revenue: NNARR declined by 31% YoY to $153 million. The decline reflects longer deal cycles and less upselling, meaning it took more time to close deals and fewer additional sales to customers. Deals are also being pulled in from future quarters (early renewals), which may make future growth appear weaker.
- Resilient Gross Retention: Gross retention slipped less than 50 basis points to 97%, a strong figure considering the outage incident’s magnitude. While net revenue retention is down due to discounts in deals, Falcon Flex (a flexible subscription model allowing customers to access a broader range of services) saw rapid adoption at 40% of bookings, doubling quarter-on-quarter.
Future Outlook
- Lingering Revenue Impact: CrowdStrike’s FY2026 revenue may be negatively impacted by lingering effects from the July outage incident, but the company’s ability to manage costs and improve efficiency could help mitigate these effects.
- NNARR to Improve in 2026: Management’s guidance suggests the decline in NNARR will continue before accelerating in 3Q 2026, as customer commitment packages normalize and comparisons with the lower growth period become favourable. NNARR in coming 4Q 2025 may follow historical seasonality with around a 30% YoY decrease.
- Balance Sheet Optionality to Aid Growth: CrowdStrike generated $231 million in free cash flow for 3Q 2025. As of October 31, 2024, CrowdStrike had $4.26 billion in cash and cash equivalents. The company has a current net cash position of $3.247 billion. CrowdStrike’s strong cash flow and flexible balance sheet will support growth and innovation.
Potential Risks
- Prolonged NNARR Decline: If the decline in NNARR persists longer than expected, it could impact long-term revenue growth. Excluding pushed deals in 3Q 2025, NNARR was down nearly 50%, highlighting the magnitude of discounting occurring at present.
- Challenges with Pricing Strategy: Heavy discounting to secure deals may conflict with CrowdStrike’s premium pricing strategy, and the company is unlikely to recoup pricing upon renewals, potentially affecting profitability.
- Market Competition: Increased competition in the cybersecurity market could pressure CrowdStrike’s pricing strategy and market share.
For investors monitoring CrowdStrike’s performance and strategic moves, consider the company’s strong fundamentals and growth potential, but also be aware of the risks associated with declining NNARR and heavy discounting. Staying informed about management’s guidance and market conditions will help in making well-informed investment decisions.
Disclaimer: ProsperUs Manager of Content, Hailey Chung, does not own shares of the company.
Reference
CGSI – Raymond James | Crowdstrike Holdings | Nov 27, 2024
