Detail analysis of CrowdStrike company
In just over ten years, CrowdStrike has become a leading independent security firm. It has more than $2B in annual recurring revenue, nearly 60% ARR growth, a roughly $40B market capitalization, very high retention and a path to $5B in revenue by mid-decade. The company has joined Palo Alto Networks as a gold standard pure play cyber firm.
It has achieved this lofty status with an architecture that enables it to go beyond point product. Combine this with outstanding go to market, solid financial execution, some sharp acquisitions and an ever-increasing total available market and you have the formula for a great company.
In this Breaking Analysis and ahead of Fal.Con, CrowdStrike’s user conference, we take a deeper look into the company, its performance, its platform and customer survey data from our partner ETR.
Is the Security Sector Really Insulated from Macro Headwinds?
The general consensus is that spending on cyber is non-discretionary and has held up better than other technology sectors. While this is generally true, as the data above shows, it’s nuanced. Let’s explore that a bit.
The chart above shows YTD data comparing the stock performance of CrowdStrike to Palo Alto Networks, the BUG ETF (a cyber index), the Nasdaq and SentinelOne, a relatively new entrant into the public markets. As you can see the security sector, as evidenced by the orange line, is holding up better than the overall Nasdaq which is off 28% YTD. Palo Alto has held up the best – being off only around 4% YTD, whereas CrowdStrike is off in the double digits this year – but up from its lows this past May.
CrowdStrike had a nice beat and raise on 8/30 but the stock didn’t respond well initially. We asked Breaking Analysis contributor Chip Symington for his technical take on CrowdStrike and the sector generally.
He stated the following:
CrowdStrike has bounced around for the last three months in its current range. Cyber stocks have held up better than the rest of the market and now might be a good time to take a shot. But I’m cautious. Fedex’s warning today of a global recession is cause for concern. Maybe some of these quality cyber stocks like Palo Alto, CrowdStrike & Zscaler will outperform in a recession, but that play is not for the faint of heart. In fact it’s feeling like a longer, more drawn out tech downturn than many had hoped…perhaps as much as 12-18 months of trading in a range with sellers still in control.
-Chip Symington, former Managing Director, Institutional Trading, Piper Jaffray
In terms of cyber spending being non discretionary, we’d argue it’s less discretionary than other IT sectors, but CISOs still don’t have an open wallet. We’ve seen spending momentum decelerate throughout this year in all sectors, including Cyber. On its most recent earnings call, CrowdStrike itself cited increased scrutiny on spending which has elongated certain sales cycles for the company.
The bottom line is we expect security to remain a #1 priority for CIOs and a firm like CrowdStrike, which is a platform play, could benefit in the mid-term as we believe it is in a strong position to consolidate point products.
Early Going in the CrowdStrike Journey
Independent of the stock price, George Kurtz, CEO of CrowdStrike is running his company through a marathon, not a sprint. The company’s key performance indicators are setting it up well for the future. Despite macro headwinds, CrowdStrike is executing extremely well.
The company is free cash flow positive and is in the black on a Non-GAAP operating profit. Yet it is growing ARR at nearly 60%. Frank Slootman uses the term “inherent profitability,” meaning that a company could drive more profits if it wanted to dial down expenses – especially on sales and marketing costs. But that would be a mistake for a company like CrowdStrike. While it has an impressive nearly 20,000 customers, there are hundreds of thousands it could penetrate. So like Snowflake and Slootman, Kurtz is not taking his foot off the gas.
