Hi all,
On the 20th of March this year, Crowdstrike’s CEO announced a program to help companies through the WFH shift, by allowing their customers to surge the number of endpoints for free for 60 days (see here: https://www.crowdstrike.com/blog/george-kurtz-addresses-coro…)
This has stayed in the back of my mind, as I was expecting to see the end of these free endpoints being reflected into the September earnings.
So far it has not materialized. The explanation is the following. In its latest earnings report (q2 2021, 09-02-2020), Crowdstrike’s CEO replied the following to a question on the subject : “You kow, we’re still in the cycle of helping companies get through this, so we haven’t pushed that hard in monetizing it. There’s been a tremendous amount of interest, and again, that was a program that we put together specifically for COVID. But you know, it is something that we can continue, uh – we can continue if we’d like going forward and we see a lot of demand for it. So, no real updates on that other than lots of people taking advantage of it.”
In short, the relief program continues unabated. It is true that the program was launched at a time when no one thought the pandemic would still be with us 6 months later.
My take on this is that, despite or thanks to the relief plan, Crowdstrike’s revenue keeps growing ~85% YoY. Bear in mind that more endpoints for free means diluting of the revenue per endpoint, but potentially acquiring new customers as the cost per endpoint is lower.
However, at some point these free endpoints will be monetized, and we could expect a surprise earnings bump. When it will happen is anyone’s guess.
Regards
Ides
12 Likes
Thanks for reminding us of this. CRWD, thus, has hidden growth and as you pointed out AND the revenue growth rate hasn’t slowed. This means that the growth is actually accelerating. Also, CRWD is not given much love in terms of its stock price compared to other companies in the hyper growth category. Not only that: their rule of 40 is 88. Is there any company that has a higher rule of 40? As investors, how can we not love it.
Chris
21 Likes
In my mind, this is an effective “land and expand” strategy, which could be accounted for in the Sales and Marketing expense category. Sure, there will be some churn when CRWD begins to monetize the feature, but there will be many companies whose developers have come to understand it, know how to work with it, and rely on it (switching costs) and likely consider it a great deal going forward for the price charged. It’s a great strategy.
3 Likes
Not only that: their rule of 40 is 88. Is there any company that has a higher rule of 40?
CRWD’s RO40 is very impressive. But you look at ZM’s 355% growth rate plus their 41% non-GAAP operating margin and their RO40 is out of this world.
PTON is not a SaaS company and only about 20% of its revenue is subscription. But last quarter they clocked a revenue growth rate of 172% (only 100% is you only consider subscription revenue growth rate) plus 24% EBITDA margin. The RO40 is not quite out of this world as ZM’s but PTON’s guidance for the quarter ended on 9/30/2020 was for 220% growth AND they are supply constrained so we can probably assume demand was considerably higher and revenue would be even higher could they ship enough Bikes to meet demand.
RO40 EV/S* EV/S**
CRWD 89 49 40
ZM 396 111 57
PTON 196(124) 23 17
- using TTM revenue
** using last quarter revenue times 4
I still view the above companies as some of the best bargains out there (despite the recent run up in share price). I included the “EV/TTM sales” and also the “EV/last quarter revenue times 4” because for hyper-hyper growth companies like ZM and PTON the sales from 3-4 quarters ago is completely unrealistic.
Chris
27 Likes
I also would like to point out that, despite this relief plan with free WFH endpoints protection, their expenses have actually improved YoY and QoQ (I believe).
That tells you that they can seemingly multiply the endpoints, not charging for them, and still see expenses metrics improving. That is in my opinion extraordinary. It can also be the reason why they don’t need to quickly monetize these new endpoints to offset their non-existent cost.
4 Likes
That tells you that they can seemingly multiply the endpoints, not charging for them, and still see expenses metrics improving. That is in my opinion extraordinary. It can also be the reason why they don’t need to quickly monetize these new endpoints to offset their non-existent cost
CRWD is wining in a big way ( at least that’s how I feel) with those free endpoints…
… Imagine all that telemetry data that’s feeding into the ThreatGraph( the brain of the Falcon platform) for free and making CRWDs AI-powered analytics even better!
Cheers!
ronjonb
12 Likes