The company provides enterprises with endpoint security software and services.
CRWD has produced enviable financial and operational results while significantly expanding its total addressable market through a platform approach, so I’m Bullish on the stock at its current level.
Sunnyvale-based CrowdStrike was founded to provide cloud-based endpoint security solutions to secure virtual, on-premise, and cloud environments with a variety of endpoints, including desktops, servers, laptops, Internet of Things [IoT] devices, and virtual machines.
Management is led by Co-Founder, Director, and CEO George Kurtz, who has previously served in various positions at security technology firm McAfee, including Worldwide Chief Technology Officer and EVP.
CrowdStrike has developed its Falcon platform that enables the company to provide cloud subscription-based endpoint security services.
Below is a brief overview video of the Falcon platform’s offerings:
The platform works by integrating CRWD’s intelligent lightweight agent and a ‘cloud-based, dynamic graph database’ it calls Threat Graph.
The intelligent agent’s task is to offload computationally-involved tasks to the cloud while retaining detection and prevention capabilities local as they are necessary on the endpoint.
Using AI algorithms and graph analytics to the data streamed from endpoints, the Threat Graph technology continuously looks for malicious activity - it “processes, correlates, and analyzes over one trillion endpoint-related events per week in real time and maintains an index of these events for future use.”
According to a 2019 market research report by Market Study Report, the global endpoint security market is projected to reach $7.5 billion by 2024, growing at a CAGR of 7% between 2017 and 2024.
”Endpoints are considered to be the weakest links in network security; hence, securing them plays a critical role in effectively strengthening the overall network.”
Additionally, growing in number and increasingly complex malware attacks force antivirus/antimalware solutions providers to constantly update their detection tools with the latest security patches.
Major competitors that provide or are developing endpoint security solutions include:
CRWD’s topline revenue by quarter has grown impressively over the past five quarters, as the chart shows below:
Gross profit by quarter has grown according to a similar trajectory:
Operating income by quarter has been uneven but has made progress toward breakeven since the firm’s IPO in June 2019:
Losses per share (Diluted) have consistently lowered as the firm makes progress toward profitability:
Source for chart data: Seeking Alpha
Since its IPO, CRWD’s stock price has risen more than 105 percent vs. the U.S. Software index’ growth of 22.4 percent and the overall U.S. market’s drop of 3.0 percent, as the chart below indicates:
Source: Simply Wall Street
In its last earnings call, management highlighted a number of key metrics that the firm has achieved as of Q4 FY20, including an annual recurring revenue growth rate of 92% [YoY] and a dollar-based net retention rate of 124%.
The dollar-based net retention rate is an extremely important figure as it indicates that the firm is obtaining 124% of the previous period’s revenues from the same customer cohort, as the chart shows below:
While this figure is lower than FYE 2019’s 147%, it is still quite strong and shows the firm’s services are seeing strong market fit and producing efficient marketing results.
As to its financial results, as of the most recent quarter, the firm added increased the number of net new subscribers by 116%, ‘achieving 90% subscription revenue growth and 89% total revenue growth, which was above the high end of our guidance.’
Management said that its team was able to capitalize on the retrenchment of Symantec in certain parts of the security market, with several partners launching replacement campaigns to fill the void.
CRWD appears well positioned to take advantage of a number of changes in the market landscape.
The company’s platform strategy appears to be bearing fruit and providing it with a much larger addressable market.
The firm has been building additional modules to its Falcon suite that management says expands its total addressable market [TAM] to an expected $32 billion by 2022.
Additionally, CRWD’s offerings are well suited to helping organizations, such as in the healthcare industry, being specifically targeted by Covid-19 attackers during the pandemic.
In addition, as many companies have mandated distributed work with their employees and independent contractors, the number and type of security threats increases dramatically.
In fact, Zoom Video (ZM) recently hired CrowdStrike in the wake of its highly publicized meeting hijackings.
CRWD’s stock price may not be cheap compared to industry competitors, but management is executing extremely well and producing impressive numbers and operating metrics for a SaaS company.
While the stock has bounced up sharply to approximately $70 per share, my bias on its future trajectory is Bullish.
The trend to cloud-delivered SaaS products combined with CRWD’s broad and growing TAM give the firm lots of room to grow. Its growth is still in the early stages.
(I have no positions in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)