CWRD:Q120 Results - Packing a Punch!

Hi All,

Crowdstrike just reported their Q1 2020 results (first as a public company) and wow they are rockin’ and a rollin’

Revenues up 103% to $96.1 million
Subscription Revenues up 116% to $86 million
ARR increased 114% to $364.6 million

Subscription margins tacked on 10 percentage points to 73% from 62% yoy

CFFO was small but positive at $1.4mln from a loss of $6.4mln yoy (FCF was -16mln)

3,059 subscription customers, which was an increase of 549 new customers.

Guidance for the year is around $436 million in revenue, which would represent yoy growth of 74%, which of course they will beat and raise.

Retention rate was not given in the PR, so we will wait for the CC to see what management has to say. First time earnings calls are nice to tune into, as management will give another overview of the company, its business model, and prospects.

Crowd is roughly a 4% position for me, and perhaps I need to figure a way to increase that a bit.

Best,
Matt

27 Likes

Interesting Matt…

The beat was by the tiniest of margins
https://seekingalpha.com/news/3479056-crowdstrike-eps-beats-…
Beat by 1c on earnings and less than $1m on revenue which was close to the very recent guidance at the IPO but the raise was the kicker apparently.

Here’s the release:-
https://seekingalpha.com/pr/17576533-crowdstrike-reports-fis…

It would have been nice to secure a greater beat but I guess the IPO had to be tightly guided. The customer and retention metrics look great however I can’t help but feel that approaching $16bn in market cap at under a $500m run rate they will need to keep the growth up to the 100% level to avoid disappointing the market. It was on an historical 60 P/S going into the earnings.

4% is ballsy - I picked up a 1.5% holding and at this valuation probably wouldn’t want to build any more and in fact at the time chose to invest more in Elastic (and take it to 2%+) and add slightly to ZS than add further to Crowdstrike.

Having said that - these guys are claiming they want to be the SaleForce of cyber security. If they can become a cloud native security platform as opposed to an application service or fabric like other players then that would be an interesting accomplishment.

A

5 Likes

It would have been nice to secure a greater beat but I guess the IPO had to be tightly guided. The customer and retention metrics look great however I can’t help but feel that approaching $16bn in market cap at under a $500m run rate they will need to keep the growth up to the 100% level to avoid disappointing the market.

A -

CrowdStrike’s original S1 didn’t include any Q1 guidance per se. The estimates you reference were in the S1 update published May 14 for a quarter that ended April 30. Given that fact, I didn’t treat them like a normal quarterly “guide” as much as the range they actually expected to report. In that respect I thought the final numbers were fine.

The most interesting thing for me was this release highlight: “Announced the industry’s first endpoint detection and response solution for mobile devices, Falcon for Mobile.” I’m no techie, but I’m surprised endpoint for mobile wasn’t already a thing. If that’s indeed the case, CRWD appears to have given itself first mover advantage in an adjacent market they’ve created themselves. I’ll defer to others on just what that means tech-wise or how big that market might be. However, it’s nice to think CrowdStrike isn’t merely disrupting its current industry, but potentially reshaping that industry in innovative ways.

We don’t have any guidance history to work off with this management team for next quarter, but we do have their past actuals to help us. They guide for $104M (+87%), but based on sequential revenue increases of $10.7M, $14.1M and $15.6M the last three quarters I’d reasonably expect something more in the $109-$113M range (+96-103%). From that perspective I think they have a chance to keep their growth at the levels you suggest. The after hours jump suggests the market initially feels the same. We’ll see if it holds.

12 Likes

Thanks for hitting the highlights, Matt! I was very impressed by:

103% revenue growth and 116% subscription revenue growth!

Cash flow positive this quarter! (Generated $1.4 million)

-NRR (net retention rate) of 147% The only (legit) rate I’ve seen this high is Twilio’s. (Pivotal tried to boast a high subscription retention rate, but that was bogus because they were stealing from their non-sub revenue, Nutanix-style.) Crowdstrike backed theirs up by adding that their customers who have “4 or more cloud modules” are up from 30% of overall customers at the end of fiscal 2018 to 47% of overall customers as of the end of fiscal 2019 (one quarter ago). Wow.

Guidance to 87% growth next quarter and guidance to 75% growth for the year! That’s incredible. Even Zoom only guided to 63% growth for the year…of course they might just beat by a larger percentage, but 75% is still an incredibly impressive guide!

They added 543 total customers (total now 3,059) in 90 days…wow that’s crazy momentum from the IPO.

I calculate roughly 300m in TTM revenue. But next quarter that will be about 350m, then we can assume 400m+ the next quarter and maybe 475m or more for the year (instead of the 436m they guided to, which as you said they will beat and raise each quarter)!

Conclusion

It’s hard to even keep up with this much growth. It kind of feels like they’re growing even faster than they expected. I increased my 2.5% position to more like 4.5% after hours. Guess it will be 5% or so when the market opens! Why don’t I hold a 10% position? 2 reasons: 1) I don’t really understand the company/industry that well yet. 2) It’s still verrrrrrrrry expensive at a PS of 50+. Multiple contraction will happen eventually and will cut into gains. Still, if they had 475m in revenue, like I expect they will 3 quarters hence, the PS would be around 30. If they indeed are still growing revenue at 80% or 90% at that point, a PS of 30 is a steal.

Bear

PS - note, I’m still penciling in roughly 200m shares outstanding. They said in their S-1 that they have “178,688,971 shares of Class B common stock outstanding.” They had another something like 20m in shares and options at the IPO…I’m not good enough to figure it exactly so I have to wait and see with these IPOs. Roughly 200m seems to be what Yahoo is using. (You can’t use the average shares from their press release, because they expect 129.9m next quarter and 147m for the year. But I assume that’s because some shares won’t yet be converted…or something.)

27 Likes

A couple more impressive numbers from CRWD:

With the 103% growth and improving gross margins, gross profit was up 139%!

They mentioned a magic number in their conference call of 1.1.

From their press release:

Magic Number

Magic Number is calculated by performing the following calculation for the most recent four quarters and taking the average: annualizing the difference between a quarter’s Subscription Revenue and the prior quarter’s Subscription Revenue, and then dividing the resulting number by the previous quarter’s Non-GAAP Sales & Marketing Expense. Magic Number = Average of previous four quarters: ((Quarter Subscription Revenue – Prior Quarter Subscription Revenue) x 4) / Prior Quarter Non-GAAP Sales & Marketing Expense.


This means they have less than a 3 month payback on their sales and marketing spend on average for the last year, fantastic.

Customers grew 21% quarter over quarter.

The high customer growth, revenue growth, payback of less than 3 months on sales and marketing spend, all tell me they have a product in high demand that is selling itself. The sales and marketing group isn’t doing much selling, more like facilitating contracts as customers are signing up.

Will be interesting to watch how long they can keep this massive growth going.

Jim (2.5% position in CRWD as of yesterday)

7 Likes

Anytime Bear!

-NRR (net retention rate) of 147% The only (legit) rate I’ve seen this high is Twilio’s. (Pivotal tried to boast a high subscription retention rate, but that was bogus because they were stealing from their non-sub revenue, Nutanix-style.) Crowdstrike backed theirs up by adding that their customers who have “4 or more cloud modules” are up from 30% of overall customers at the end of fiscal 2018 to 47% of overall customers as of the end of fiscal 2019 (one quarter ago). Wow.

Guidance to 87% growth next quarter and guidance to 75% growth for the year! That’s incredible. Even Zoom only guided to 63% growth for the year…of course they might just beat by a larger percentage, but 75% is still an incredibly impressive guide!

They added 543 total customers (total now 3,059) in 90 days…wow that’s crazy momentum from the IPO.

Just keep in mind, the numbers released yesterday were from quarter ending 4/30/19 (before the IPO).

The awesome 147% NRR was actually through 1/30/19, but they did mention it was above 120% in this quarter (That seems to be their internal success/fail level of NRR). I would assume this is because like Zscaler, their initial “lands” are getting bigger and bigger (customers are signing up for 3-4 modules at the start) and leaving less available to “expand”. There was no mention of seasonality that I recall during the call. It’s all good and pretty much win-win either way.

Best,
Matt

2 Likes

I had read up more on CRWD and decided to get in at beginning of the week, so got lucky with this ER pop. Still incredibly pricey, but my initial hesitance was more from a place of ignorance as I heard “endpoint security” and just zoned them out, as there is a ton of competition in the space.

But their ER/CC is an impressive read/listen. I wrote about it here:
https://discussion.fool.com/cc-transcript-crowdstrike-holdings-i…

CrowdStrike Holdings, Inc. (CRWD) CEO George Kurtz on Q1 2020 Results - Earnings Call Transcript https://seekingalpha.com/article/4275914?source=ansh $CRWD

I wont copy it here, but first main part does good job of summing up the genesis of company and why they believe their approach is unique and best.

This is key for me…describing themselves as more than just endpoint security:

“While we started in the endpoint security market, given the nature of our cloud-native architecture, we’re able to rapidly innovate on top of our platform and build new modules for additional functionality, and use case is not typically associated with endpoint security. Since 2016, we have launched seven new cloud modules and today we address five markets, corporate endpoint security, threat intelligence, security and vulnerability management, IT service management software and managed security services. Combining these market segments, we estimate that our global market opportunity is $24.6 billion in 2019, and growing to over $29 billion in 2021.”

Also:

“In looking at our future growth prospects, it is common for those new to the CrowdStrike story to only think about the opportunity as endpoints such as desktops and servers. However, we think about the opportunity differently and more broadly than that. We expanded our market opportunity by securing a wider array of workloads which includes desktops and servers, virtualized and cloud environments, IoT devices, and containers. In Q1, we expanded our market opportunity even further when we introduced Falcon for Mobile that supports Android and iOS. This is a powerful vector for growth. These workloads need to be protected and they are growing with every new connected device and every new cloud instance.”

Here they sound like they want to be a platform:

“We also intend to grow by broadening our reach into new international markets and customers segments including smaller organizations as well as acquiring customers in the federal government vertical. And lastly, we see significant longer term opportunity with new workloads and applications within the CrowdStrike store. The CrowdStrike Store offers the first and only unified security cloud ecosystem of trusted third-party applications. This sets the stage for us to further expand our TAM and grow in segments outside of security, such as IT operations and compliance.”

Of course a company will say nice things about themselves, but this is pretty impressive. I am a bit disappointed i was behind the ball here, but my early bias as this being just another endpoint security company is what cost me.

I have nothing but my gut to base this next statement on, but with a valuation like this, and possible lockup expirations down the road, their valuation multiple will shock those that haven’t really looked at their fundamentals, and I think they will be the type of company to pop after an ER and then trend down in a volatile manner until the next ER and then pop again. As far as modeling goes, I think they do around 90% growth this year putting them about $475m, which would be a 34 TTM P/S, or lower than ZS and OKTA today, if they held their current $16.3b mkt cap.

Then I think you have to assume growth slows and if we say 75% growth in year 2, they would be at about $830m, or about a 20 P/S at today’s mkt cap. Unless the market starts repricing all the hypergrowth stocks fairly dramatically, I think it is fair to expect they would have something more like a 25-30 P/S after a 75% y/y growth rate.

You kind of need the stock to be at around a 30 P/S in 2 years, if growth does slow to 75%. If growth slows further, I think this price is untenable. If growth actually stays higher, it is probably a huge return.

My napkin math says it is 23% CAGR over next 2 years, from this level. Nice, but not earth-shattering, so I am keeping a small allocation and hoping we see an opportunistic dip. Otherwise I think something like ESTC will still net you a better return the next 2 years.

Dreamer

21 Likes

The awesome 147% NRR was actually through 1/30/19, but they did mention it was above 120% in this quarter (That seems to be their internal success/fail level of NRR). I would assume this is because like Zscaler, their initial “lands” are getting bigger and bigger (customers are signing up for 3-4 modules at the start) and leaving less available to “expand”. There was no mention of seasonality that I recall during the call. It’s all good and pretty much win-win either way.

In the S-1 Crowdstrike reported estimated NRR of 137-141% for the quarter ending April 2019 (see page 10).

https://www.sec.gov/Archives/edgar/data/1535527/000104746919…

Chris

2 Likes

“In Q1, we expanded our market opportunity even further when we introduced Falcon for Mobile that supports Android and iOS. This is a powerful vector for growth. These workloads need to be protected and they are growing with every new connected device and every new cloud instance.”

Yes, Dreamer, the above quote was a big deal and for me was the most important thing I head on the call. To world has already moved to mobile. In considering the potential impact on future revenue, just think back to when Facebook first focused on expanding into mobile. That move really juiced their financials since. Many people is on mobile much of the day including when they are working. Endpoint security with mobile devices is a huge part of the market. CRWD should see some great growth from this, particularly since it was just introduced in Q1 2020.

Chris

3 Likes

In the S-1 Crowdstrike reported estimated NRR of 137-141% for the quarter ending April 2019 (see page 10).

Thanks Chris. You think they would have highlighted such a great NRR (anywhere between 137-141% is fantastic!) during the call. Maybe in future calls they will, or go the Elastic route and just say it is/was above 120% for xxth consecutive quarter.

Matt

Thanks Chris. You think they would have highlighted such a great NRR (anywhere between 137-141% is fantastic!) during the call. Maybe in future calls they will, or go the Elastic route and just say it is/was above 120% for xxth consecutive quarter.

On the same page they had put their estimated revenue. It was actually a bit higher so NRR was likely at the high end of their range. But I think we might be able to find the actual number when the 10-Q is released.

Chris

Sorry, but i don’t understand the hype about Falcon for mobile.

  1. The “mobile moment” (more users on mobile than desktop) happened years ago, and if CRWD wouldn’t think about being present on mobile … I wouldn’t have words for it.

As to my understanding at Zscaler you are connected through a “web gateway” to zscaler, so a CEO or anyone from a company can connect to it (on a mobile device) from anywhere on the world securely to the internet.
As to my understanding at CRWD you do this via the Falcon for mobile app, right?
So basically, there is no difference which could elevate CRWD position in comparison to Zscaler. It should be natural that security companies from today offer mobile protection.

  1. Here you can find the app in the appstores:
    Apple: https://apps.apple.com/us/app/crowdstrike-falcon/id145881565…
    Android: https://play.google.com/store/apps/details?id=com.crowdstrik…

Google Playstore Description:
Please note that CrowdStrike Falcon is an enterprise application. In order to use the app, you must have a QR code provided by your organization’s IT team.

This app provides your IT team the visibility necessary to detect abnormal events which may indicate a malicious attack against your device. The app is designed with privacy in mind and to minimize impact on device performance

The capabilities will vary based upon your organization’s policies. Please contact your IT team to learn more.

CrowdStrike Falcon provides visibility into enterprise app behavior on mobile devices to enable IT teams to uncover malicious or unwanted activity in business-critical apps. Your IT team may designate Falcon protected apps, as indicated with a CrowdStrike icon.
The app is extremely high performance and lightweight with a nominal effect on battery life and data bandwidth usage.

Observations:
In both stores only 2-4 Reviews.
Only 100+ Installs.
I am wondering, why so few installs. Aren’t the companies people using CRWD while traveling yet?

As to my understanding, it’s basically just the mobile version of CRWD, which they should have 100%. No way a security company would just offer endpoint security just for desktops etc.
Just look at zscaler https://youtu.be/kaKe_ipcrKY?t=95

  1. I am not sure if you guys above - who are excited about falcon for mobile - realize that this app is not for the broad market / consumer. As the description states
    Please note that CrowdStrike Falcon is an enterprise application. In order to use the app, you must have a QR code provided by your organization’s IT team.

What am I missing here what you guys see or know?

9 Likes

Yes, all the rest of the big security players already have mobile security. CrowdStrike’s competitive advantage remains it’s security endpoint software being built from the ground up for the cloud. Just like Zoom.

1 Like

Stocknovice, where did you find quarterly historical info? I looked in the S1 and the earnings release and I can find only Q1 2020 full info. The only other qrtly information I can find is subscription revenue.

tp

Stocknovice, where did you find quarterly historical info?

Everything I found came from their last S1 prior to IPO:

https://www.sec.gov/Archives/edgar/data/1535527/000104746919…

Some of the figures were detailed in the financials (see page 104), but some of it might have come from the charts and slides in the business presentation area. If it helps, everything I was able to source is in table form within my CRWD comments here: https://discussion.fool.com/stocknovice39s-june-portfolio-review….

2 Likes

Stocknovice, where did you find quarterly historical info? I looked in the S1 and the earnings release and I can find only Q1 2020 full info. The only other qrtly information I can find is subscription revenue.

Hi tp, they must have had it somewhere because when Bert wrote them up in June, before the IPO, he wrote “It grew revenues by $10 million in the October quarter and $14 million in the January quarter when revenues reached $80 million.”

Since we had $96 million in the April quarter and figuring backward and rounding, we have


**Apr: $96 million, up $16 million from 80**
**Jan: $80 million, up $14 million from 66**
**Oct: $66 million, up $10 million from 56**
**July $56 million.**

Based on probably a sequential gain of roughly $18 million for the next quarter (July), I’d estimate $114 million in total revenue, which, rising from $56 million, gives a yoy growth of roughly 111%.

Hope that this helps,

Saul

10 Likes

Based on probably a sequential gain of roughly $18 million for the next quarter (July), I’d estimate $114 million in total revenue, which, rising from $56 million, gives a yoy growth of roughly 111%.

I made a mistake on my calculator. 114 divided by 56 is 2.04, so it should be a growth rate of 104%, not 111%.

Saul

3 Likes

I made a mistake on my calculator. 114 divided by 56 is 2.04, so it should be a growth rate of 104%, not 111%.

The subscription revenue is about 90% of revenue so using Saul’s estimate of $118M in total revenue we get $106.2M in subscription revenue. Comparing to the $49.2M in subscription revenue from last year’s July quarter we get 116% y/y growth which would be exactly consistent with the growth from the April 2019 quarter.

Chris

4 Likes

Thanks for link and tips!

The growth is so impressive. I would think the business is forced to build systems to accommodate the growth instead doing things manually. Maybe that gives them an advantage somehow, later?

I wanted to think about cash flow and potential profitability. A few of the companies discussed are profitable and carry a premium valuation even though growth is not as high. (PAYC for example) They gave operating and free cash flow numbers. Their business is asset light. I don’t know if one is better to look at than the other. Any thoughts on this?

Whatever their software does they are using AWS for data storage so they have increasing operating expenses (and can we assume they will be linear as they scale?) as the data increases. Typically, they are spending large amounts on sales and marketing and R&D. Does using AWS as infrastructure and accounting for it as an expense translate long term into a limited margin as S&M and R&D reduce as revenue grows? (still much higher than traditional businesses, but comparing to a ZS for example) Is there a strategic risk?

3 Likes

Chris,

Sauls estimate was actual $114 Million, it was 18 mil sequential gain.
So 90% would be $102.6 Million for sub services

Thanks!
Harrison