CrowdStrike (NYSE: CRWD) is a cybersecurity company that provides endpoint security, threat intelligence, and attack response services. The company was founded in 2011 with a mission “to stop breaches” and provides services to some of the world’s largest and most influential companies.
Despite the stock increasing by over 300% since going public in 2019, and doubling in the last year, there are still plenty of reasons I am buying CrowdStrike today.
A look at CrowdStrike’s financials
CrowdStrike reported another impressive quarter in fiscal Q2 2022, with revenue growth of 70% year-over-year (YoY) or $337.7 million, once again beating analysts’ estimates. Its subscription margins also remained stable at an impressive 76%. Subscription revenue accounted for roughly 94% of total income, while annual recurring revenue (ARR) of $1.34 billion provides a highly predictable figure.
What I like about CrowdStrike
CrowdStrike is founder-led, with two of the three founding members working as the CEO and Chief Technology Officer. CEO George Kurtz also owns a roughly 10% stake in the business, which is an encouraging sign for investors.
The number of cyberattacks globally has increased dramatically, and cybercrime is forecast to cost the world $10.5 trillion annually by 2025. CrowdStrike’s services have become increasingly relevant with the onset of COVID-19 and the digital transformation, which leads to companies looking for modern security solutions. Kurtz has identified these two factors as sustainable tailwinds going forward. CrowdStrike estimates that its total addressable market is approximately $36 billion today and expanding at a 9% compound annual growth rate, leaving an enormous opportunity for growth.
CrowdStrike has been named by research firm Gartner as a leader for endpoint protection platforms in 2021, with CEO Kurtz stating that CrowdStrike is “the gold standard in security” and to put it simply “actually works”. Its cloud-native platform also gives it an advantage over on-premise solutions due to the large amount of data analyzed as well as being easier to deploy and update. Furthermore, as the number of subscribers increases on its platform, this should also enhance its artificial intelligence capabilities.
The recognition and trust have undoubtedly helped it to continue to attract customers, which now includes nearly half of the Fortune 500. The company added 1,660 customers in the quarter, bringing the total to 13,080, representing 81% growth YoY. It also has attractive unit economics with a magic number denoting sales efficiency of 1.4.
CrowdStrike continued to monetize its customers and reported a dollar-based net retention rate exceeding its benchmark of 120%, a feat which it has managed every quarter since its IPO. Its land-and-expand strategy continues to be successful, with two-thirds of subscription customers now adopting four modules demonstrating its ability to cross-sell.
Risks to CrowdStrike’s share price
The company is operating at a loss of $47.4 million, compared to $30 million a year prior. This is primarily due to high research and development costs and stock-based compensation. It is also trading at a somewhat frothy valuation of 40X sales, meaning that investors will have to pay a premium for the stock.
CrowdStrike also faces competition from many different competitors. These include legacy competitors such as McAfee, network security vendors like Palo Alto Networks, and more.
CrowdStrike’s growth potential:
CrowdStrike is a business that is executing effectively and operating in an increasingly important area, leading to an expanding market opportunity. Despite the valuation, this founder-led business is one that should continue to attract customers and grow significantly in the coming years.
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Contributing Writer at MyWallSt
Colm's favorite stock is Virgin Galactic as it is representative of his visions for our world in the future.