Bert's writeup on CrowdStrike (CRWD) IPO (

I believe it was mentioned earlier on this board, worth a read if you’re considering taking a position.

https://seekingalpha.com/article/4269865-crowdstrike-just-an…

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So I’m less concerned about the EV/S valuation in isolation, however I am concerned by the fact that its valuation is now 50% of the entire TAM when its market share is only 2% and the market is only growing 20% per year. Something isn’t adding up here.
A

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From the report:

“In any event, the Corporate Endpoint market is said by IDC to be in the $8-9 billion range while security and vulnerability management is forecast to grow from $8.4 billion to $10.4 billion over the next 2 years. In addition to the product TAM, the service management and managed services TAM is in the range of $6 billion currently with growth to $8 billion forecast by 2021. Overall, the company suggests its TAM is currently $25 billion and will reach $29 billion by 2021.”

So the valuation, at $6 billion, is rather 24% of the today’s TAM. Still a pretty big number though.

Also from the report:

“…the solution is one designed to replace the familiar anti-virus protection that has been available for decades from Symantec (SYMC) and from McAfee. It is basically a new technology for solving an age old problem, and users at enterprises are apparently enthusiastic at replacing the solutions that have been around for years.”

It sounds to me like CrowdStrike’s offering is replacing legacy solutions, so it may be more of a market share grab from McAfee and Symantec. Can they get 24% of the market? Perhaps.

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I think you guys are confusing marketcap and TAM. TAM is the total revenue opportunity. Crowdstrike did 312 million in revenue compared to a TAM of however many billions you want to call it. 10, 25…whatever it is, it will grow.

Comparing the marketcap and the TAM doesn’t make any sense to me. Let us say you had one company dominating a market. THe TAM is 1 billion and the company does 1 billion in revenue. No one in their right mind would pay only 1 billion for that company. The marketcap would probably be more like 5 billion plus depending on how profitable it was.

best,
ethan

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I was thinking the same thing Ethan.

If CRWD were to capture 24% of s $25B TAM and become a mature company, shouldn’t the market cap be roundabouts:

24% x $25B x 66% (gross margin) x 15 (P/E) = $60B.

So with a current market cap of $12B this should be a 5-bagger in a few years.

Sorry if I’ve got this wrong as I’m a bit of a newbie at this.

This definitely looks like a Saul stock, though, and I would be surprised if it does not appear in his June summary.

Disclosure: I jumped in with a Saul-style tryout position this morning after it levelled out at 60ish.

(I can’t believe you can’t edit posts on this site.)

This definitely looks like a Saul stock…

My biggest question mark about this is competitive advantage. Other stocks discussed here typically have large competitive advantages. They may not be the only player in their markets, but they have something special that makes them stand out among the competition. CrowdStrike is in a very crowded market. Some of that crowd are just cheap imitators banking on price. Some is old guard with tired products ripe for competition. But, it is still quite a crowd. Does CrowdStrike really have something that is going to strongly set them apart?

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Saul only mentions “moat” once in his entire 3-page knowledge base. And it could be argued that a recent addition of his, ZM, doesn’t have any more of a moat than CRWD does. Although subjective measures like a moat are useful and important, I believe they are of lesser priority than YoY growth and gross margins, which in CRWD’s case are outstanding.

I admit the fact that CRWD is a Cybersecurity company also attracted me. Given the rise in hacking in recent years, the growth in TAM could easily be underestimated.

5th

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Didn’t Bert say that if it got down to 40 he would recommend a starting position.

So the valuation, at $6 billion, is rather 24% of the today’s TAM. Still a pretty big number though.

No 6bn valuation was at the IPO price it is now 12bn market cap after the rise so ~50% of the entire TAM. (Or thereabouts when I wrote the post).

I can’t think of many industries where an emerging but tiny player is worth half the entire TAM - not even Tesla! I can’t think of any market leaders worth 50% of the entire TAM). Maybe Intel is closest I can think of with 200bn market cap and a TAM of 500bn for semiconductors.

Of course there’s no direct relationship but just the proportionality seems off.

A

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Didn’t Bert say that if it got down to 40 he would recommend a starting position.

Bert said $40 share price, not EV/S of 40 (only stating this because his article was released free on Seeking Alpha).

Here’s an interview with CrowdStrike’s CEO, seems like his elevator pitch is “We’re the Salesforce.com of security.”

https://www.cnbc.com/video/2019/06/12/crowdstrike-ceo-george…

Moat is exactly one of the questions which has come up in the Zoom discussion. It appears that they may have an edge at the moment, but it is a weak edge exactly because multiple other big players do much the same thing and could well erase that edge with a new release. Since the function performed is generally not deeply embedded in a company’s processes, that means it is easily replaceable by the next hot product.

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Moat is exactly one of the questions which has come up in the Zoom discussion. It appears that they may have an edge at the moment, but it is a weak edge exactly because multiple other big players do much the same thing and could well erase that edge with a new release. Since the function performed is generally not deeply embedded in a company’s processes, that means it is easily replaceable by the next hot product.

Good point Tamhas. I think most readers of this board remember when Netscape IPO’d. They were all the rage and caught Microsoft by surprise. Microsoft quickly responded and Netscape was quickly reduced to irrelevance.

I don’t know if there are any similarities between Zoom and other companies, it just reminded me of it.

Jeb

Didn’t Bert say that if it got down to 40 he would recommend a starting position.

Bert said $40 share price, not EV/S of 40 (only stating this because his article was released free on Seeking Alpha).

Exactly, and if we are talking about what Bert thinks in his free article, and if he said $40 a share then he is not interested because CRWD closed at $58 a share today. So, I do subscribe and follow Bert and I always look for his recommendation. No worries, man it sure jumped after IPO , unlike UBER and LYFT.

Smallish position now that I will continue to monitor. With growth rates being very good, willing to ride. If I see other competitors jumping in and slowing ZM growth then can get out. With the risk with great upside potential.

John

$60 is only 20% higher than $40. It’s a rounding error these days. I don’t see why if you like it at $40 you don’t like it at $60.

What does get me, what I can’t get over though, is if CROWD is the next Symantec, they’re going to go after their $4.5 billion annual revenues, they already trade at the same valuation SYMC does. SO what’s left?

SYMC actually has higher gross margin than CRWD does. SYMC has 78% Gross Margin. CRWD is at 65%.

I already figured CRWD would trade around 50x sales. That’s what Zoom went public at. The gold rush of SaaS is over. Every single IPO from here on out is going to open at very high P/S ratios, unlike MULE, MDB, AYX and the rest that all started at somewhere between 10-15x sales on their first day of trading. We’re really having to sharpen our pencils at this point to see if the valuations make any sense.

I also notice that CRWD spends almost their entire sales amount on Sales and Marketing, clearly higher than any of the other SaaS companies I’ve looked at. So customers aren’t exactly flocking to CRWD on their own.

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$60 is only 20% higher than $40. It’s a rounding error these days. I don’t see why if you like it at $40 you don’t like it at $60.

I think you mean 50% but yeah! That’s what I took from Bert’s article.

If you’re hoping for, let’s say, a triple from $40 in three years, that would still be a double from $60.

Its decent enough when the pickings are slim and it seems to be near the end of the cycle.

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