CrowdStrike Stock: Poised For Meteoric Growth, Valuation Is Getting Better

CrowdStrike Stock: Poised For Meteoric Growth, Valuation Is Getting Better

Milan_Jovic/E+ via Getty Images Cybersecurity is a growing necessity in our modern day digitally-connected world. Whether it’s the need to secure devices working remotely or to protect pipelines from Russian hackers, Cybersecurity has been called the 4th defensive strategy (Land, Air, Sea, and now Cybersecurity).

According to GlobeNewswire , The Cyber Security market globally is forecasted to grow at a 12% CAGR between 2022 and 2028, reaching a size of $366 billion. With the Russia-Ukraine crisis heating up and tensions with China & Taiwan, Cybersecurity is at the forefront of everyone’s mind. However, there has been a problem in the Cybersecurity industry, enterprises have clunky on-premise IT setups with little flexibility for instant upgrades and threat detection, this is where CrowdStrike comes in.

CrowdStrike ( CRWD ) was founded in 2011 with a goal to reinvent Security for the Cloud. They have leading, patent-protected technology, which has seen huge revenue growth of 81% in the prior year and 65% expected moving forward. Their share price is down 31% from its highs in November 2021, as inflation has caused growth stock multiples to compress. In this post, I’m going to dive into the platform, technology, financials, and valuation. Cutting-Edge Technology

CrowdStrike offers a leading “Security Cloud” software, which is on the Department of Homeland Securities approved products list. Their Flagship platform (Falcon) covers multiple large security markets; Cloud Security, Corporate endpoint security, Threat intelligence, Identity protection, and more. Endpoints such as Laptops, Servers, and IoT devices are becoming vulnerable to cyber-attacks, as the world transitions toward remote working and the Cloud.

CrowdStrike utilizes the power of Artificial Intelligence (AI) and its proprietary algorithms to detect threats and continuously improve the system as more data becomes available. This offers strong Network effects as more customers equal more big data, equal better AI, and better protection for customers. The business is also protected with 65 issued patents and 102 pending. CrowdStrike Technology (Investor Presentation 2021) Established Customer Base

The firm has an established customer base equating to 254 of the Fortune 500, 65 of the Fortune 100, and 15 of the top 20 banks. Customers include Mercedes-AMG, Virgin Hyperloop, and Goldman Sachs (NYSE: GS ). CrowdStrike is expecting 16,325 subscription customers by the end of 2022, up a further 65% year over year. CrowdStrike Customers (Investor Presentation) Land and Expand Strategy

CrowdStrike uses a “Land and Expand” strategy to win new enterprise customers. They offer a number of modules and “get their foot in the door” with just one or two modules, before easily upselling to more. The beauty of a cloud-based system is they can upsell in a very low friction way, additional cloud modules can easily be activated in real time. The firm also has a direct sales team which offers a very successful trial to pay model. In addition, partners can purchase through the AWS marketplace.

Their strategy is working great so far as customers are not just growing, they are sticking around and spending more. A great way of measuring this in Software-as-a-Service (SaaS) companies is via their net dollar retention rate, at CrowdStrike, this equates to above their 124% benchmark, which means the customers are staying and spending more. With 69% of their customers purchasing over 4 modules. CrowdStrike retention (Investor Presentation) High Growth Financials

CrowdStrike smashed Wall Street expectations with annual recurring revenue (ARR) coming in at $1.73 billion, which is up an incredible 65% year-over-year, beating analyst expectations of $1.68 billion.

The firm also reported an adjusted earnings of 30 cents per share for Q4 2021, equating to $431 million in revenue. This was above analyst expectations of 20 cents and $411 million in revenue. In addition, the company has just become free cash flow positive with a record $442 million for the year.

As a software company, Gross margins are super high at 76%, but operating margins are negative as the firm invested heavily in R&D and Sales. Thus, they have a GAAP loss from operations of -$142 million, compared with $92.5 million in the prior year. Personally, I think the R&D and Sales investment is the right strategy, especially as the company is in such an early stage of growth. With $2 billion in cash and $738 million in long-term debt, the firm’s balance sheet is fairly healthy, in the short term anyway. Gross Margins (Investor presentation) Is the Stock Undervalued?

In order to value CrowdStrike, I have plugged in the latest financials into my discounted cash flow model. I have estimated 60% growth […]

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