What Happened:

Shares of cybersecurity company CrowdStrike (NASDAQ:CRWD) jumped 5.3% in the morning session after the company provided positive updates to analysts, partners, and investors during its Fal.Con conference. 

CrowdStrike shared encouraging news about Falcon Flex, a new flexible licensing agreement for customers with pre-negotiated commitments that can be drawn down over time and even applied to new product releases. Given the average module renewal rates of >95%, management expects >65% ARR (annual recurring revenue) uplift from these Flex deals once the initial bundle discounts lapse upon renewal. 

Looking ahead, the company reaffirmed its long-term financial targets (EBIT and FCF margin guidance of 28-32% and 34-38% by FY29). This is reassuring as it suggests there might be no significant financial impact, especially on its bottom line, following the recent cyber incident that resulted in a global tech outage. 

However, the company did not provide updates on near/mid-term targets, suggesting visibility into other outage-related headwinds remains unclear. After the initial pop the shares cooled down to $290.16, up 4.7% from previous close.

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What is the market telling us:

CrowdStrike’s shares are very volatile and over the last year have had 14 moves greater than 5%. In context of that, today’s move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The previous big move we wrote about was a day ago, when the company gained 5.9% as markets roared back after an initially muted response to the Fed's rate cut, which sparked a renewed appetite for risk assets. While investors were expecting a reduction in rates from the US central bank, there was a bit of back and forth on whether the cut would be 25bps (a quarter percent) or 50bps (half a percent). 

The Fed ended up slashing its policy rate by 50bps (0.5%) to 4.75%-5.00%. This marks the first rate reduction in roughly four years. As a reminder, the Fed--under Chair Jerome Powell--began raising rates to tackle inflation coming out of the COVID-19 pandemic when a confluence of supply chain disruptions, labor shortages, and stimulus spending caused inflation to run hot. 

Looking forward, the Fed signaled that more cuts are possible in 2024/25. Putting it all together, the announcement and outlook provided a breath of fresh air and a clearer view of the Fed's monetary policy stance, which the market has been waiting for with bated breath. If there's anything the market doesn't like, it's uncertainty. 

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks such as those in the technology sector, where the current value depends more on cash flows many years out in the future.

CrowdStrike is up 17.7% since the beginning of the year, but at $290.16 per share it is still trading 26% below its 52-week high of $392.15 from June 2024. Investors who bought $1,000 worth of CrowdStrike’s shares 5 years ago would now be looking at an investment worth $4,332.

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