As the coronavirus shifted the workplace to people’s homes, the need for cloud architecture became apparent and with that necessity came the question of security as an astounding 3,000-4,000 daily attacks were being reported to the FBI. This is where Crowdstrike (NASDAQ: CRWD) comes in. The company is responsible for providing endpoint security, threat intelligence, and attack response services. Since going public in June 2019, Crowdstrike’s stock price has surged over 285% and is showing no signs of slowing down. With the introduction of two vaccines, the pandemic will soon be a thing of the past. Will this bite into the company’s profits and is it a good buy right now?
The bull case for Crowdstrike
Crowdstrike’s Falcon platform is a cloud-native solution that lets you effortlessly manage thousands of devices. Its competitors are either tacked-on to the cloud or are more cumbersome to work with. It is this architecture that helps the company boost its margins as there is little on-site deployment or maintenance and scaling is a breeze. According to the company’s last quarterly report (Q3 2021), both its subscription and professional services gross margin are up 3% (to 77%) and 12% (to 37%), respectively year-over-year (YoY). The same report also shows that Crowdstrike has 8,416 customers, an 85% increase YoY and those customers are probably going to stay as it can be quite costly to switch security providers.
Customer acquisition remains a key goal for the company as well as increasing revenue from existing clients and Crowdstrike is doing just fine in that department as its Dollar-based Net Retention Rate (DBNRR) continues to exceed 120%. Falcon has an AI component, Threat Graph, that continuously keeps expanding and learning, in real-time, whenever a new threat is detected or more customers are added; this is a significant competitive moat that further assures customer retention and acquisition. Falcon is also platform-agnostic, as it can run on Linux, macOS, and Windows without breaking a sweat. The company’s revenue is up nearly 87% YoY, beating estimates for the fourth time in a year.
The bear case for Crowdstrike
There are a lot of players in the IT security space and Crowdstrike’s product isn’t the best. According to testing conducted by AV-Comparatives against real-world cyber threats, Crowdstrike came in 14th against 18 other security companies. As the company is fairly young and doesn’t have as much money in its coffers as its competitors, this can bode poorly for future growth. Test results were released after the company’s third-quarter so fallout is yet to be seen.
The end of the pandemic has finally arrived, or rather, the start of the end. Vaccine rollouts are starting to progress and that will eventually mean a return to physical workplaces and lower cloud traffic. This will no doubt have an impact on Crowdstrike’s earnings.
So, should I invest in Crowdstrike?
The global cybersecurity market is expected to be worth $270 billion by 2026 and Crowdstrike offers an easily-installable, comprehensive, and OS-agnostic platform to get organizations quickly up and running. Updates and installations don’t require reboots and it has a powerful AI platform sitting atop its main offering. These are factors that will continue to grow Crowdstrike’s customer base and I feel it is a very good candidate for your long-term portfolio.
1. Who is the CEO of Crowdstrike?
Co-founder George Kurtz.
2. Is Crowdstrike profitable?
Yes. On a non-GAAP basis, its EPS is $0.08; its GAAP EPS is -$0.11.
3. How serious is cybercrime?
It’s expected to have a global price tag of $10.5 trillion by 2025.
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Contributing Writer at MyWallSt
David fell in love with the stock market in 2000 after making $30,000 overnight on Techniclone. His favorite stocks today are Netflix, Google, Amazon, and Apple as they are the market leaders in their sectors and are safe long-term investments.