Commvault plunges 20% on FY2026 guidance despite Q3 earnings beat
Software firm's revenue outlook falls short as investors question growth trajectory
CommVault Systems shares tumbled nearly 20% on Tuesday after the data protection software company reported strong quarterly results that nonetheless disappointed investors with its full-year revenue outlook.
The stock closed at $100.50, down $28.86 or 22.3%, wiping out roughly $1.2 billion in market value. The sharp decline pushed shares below their 52-week low of $114.47 and extended the stock's slide from its February peak above $200.
The selloff came despite Commvault delivering solid third-quarter fiscal 2026 results. Revenue climbed 19% year-over-year to reached $314 million, surpassing the analyst consensus of approximately $305 million. Non-GAAP earnings per share of $1.17 also topped the estimated $1.00.
The company's annualized recurring revenue (ARR), a key metric for subscription-based software businesses, grew 22% year-over-year to reach $1.085 billion. Subscription revenue jumped 30% to $206 million, with SaaS revenue surging 44% to $87 million.
Yet investors focused on Commvault's updated fiscal 2026 guidance, which calls for total revenue between $1.177 billion and $1.18 billion. While the company raised its outlook, the midpoint implies growth of roughly 7.4% from the prior year's $1.096 billion—a deceleration that rattled shareholders accustomed to the company's recent double-digit expansion.
"The market's negative reaction suggests that investor focus may have shifted to other elements of the report or forward-looking concerns," according to market analysis. The company also announced a cost optimization program during the third quarter to align its cost structure with evolving business needs.
Analysts had already been adjusting expectations ahead of the report. DA Davidson lowered its price target on Commvault to $185 from $220 on January 22 while maintaining a Buy rating, citing broader software sector multiple compression. The consensus analyst target remains at $174.58, representing substantial upside from current levels—but that gap reflects the magnitude of Tuesday's reset.
Commvault's guidance includes subscription revenue between $764 million and $768 million, with subscription ARR expected to grow approximately 24% year-over-year. Free cash flow is projected at $215 million to $220 million, though the company noted one-time payments associated with its cost optimization program will impact that metric.
CEO Sanjay Mirchandani highlighted the company's "record customer engagement and adoption", noting that customers are increasingly choosing Commvault for its "AI-enabled platform that addresses rapidly evolving identity and emerging threats." The company reported a record number of new customers added in the current fiscal year, and its SaaS net dollar retention rate stood at 121% as of December 31, 2025.
The disconnect between Commvault's operational momentum and its stock price reflects broader pressures facing growth software stocks, which have suffered from valuation compression as investors demand clearer paths to profitability and sustainable growth. With shares now trading at 27 times forward earnings—down from 70 times trailing earnings before the drop—much of the premium has been removed from the stock.
Investors will be watching for signs that Commvault can reignite its growth trajectory when it reports fourth-quarter results and provides initial fiscal 2027 guidance. The company's fourth-quarter outlook calls for revenue between $305 million and $308 million, representing modest sequential growth from the third quarter.