I wanted to pull together some numbers and views on CRWD after some apparent differences on the stock from some respected people on this board. I’ll focus on the numbers and share a couple of key links.
BroadwayDan write-up about the key people responsible for building the company including a lot on CEO George Kurtz - a tough, speed-loving ultra-competitive man with a passion for security and a big ego:
ethan1234 write-up on the Preempt acquisition in Sept 2020, which essentially says that Preempt will make CRWD’s existing products much stronger and smarter:
rdutt (Ron) summary of the Solar Winds hack and subsequent CRWD deployment, saying that this should boost them a lot:
TMFCheesehead shows how CRWD has had incredible customer adoption and his take on CRWD’s moat and optionality:
And lastly the maestro Saul’s exceptionally positive take on their Q3 results:
Revenue has been growing at the same breakneck pace for the last 11 quarters!
**$m $m $m QoQ QoQ QoQ** **Revenue 2019 2020 2021 2019 2020 2021** Q1 47.2 96.1 178.1 19% 17% Q2 55.7 108.1 199.0 18% 12% 12% Q3 66.4 125.1 232.5 19% 16% **17%** Q4 80.5 152.1 **21% 22%**
Looking at QoQ revenue growth, Q3 was an acceleration from the prior year, and Q4 has been historically their strongest quarter, with >20% QoQ in both prior years. Given the tailwinds of the moment - massive and fast cloud adoption, CRWD’s recent launch of cloud endpoint protection, the first fruits from the Preempt acquisition and the positive visibility of CRWD in the Solarwinds hack it is easy to see them beating 20% QoQ in Q4 this year too.
Looking at ARR - where other SaaS providers have seen a bit of a contraction as contract durations shortened during the pandemic - I see no signs of a slowdown:
**$m $m $m QoQ QoQ QoQ** **ARR 2019 2020 2021 2019 2020 2021** Q1 170 365 686 17% 14% Q2 208 424 791 22% 16% 15% Q3 254 502 907 22% 18% 15% Q4 313 600 23% 20%
And lastly - NRR has been above 120% for the last 11 quarters too.
My take: From a top-line perspective relentless and consistent execution at increasing scale, with tailwinds which will possibly (likely?) even further boost revenue growth in Q4. If they came in at 22% QoQ like they did last year and the year before, they will hit revenue of $283.6m vs Q4 guidance of $245.5m-$250.5m, or $248m at the mid-point. I think this more than possible in this environment.
Gross profit margins have been steadily improving for the last two years and was the highest it has ever been in Q3, up a full 6%pts from Q3 a year ago. This is really quite remarkable - one would expect operating leverage, but GM’s improving like this is exceptional:
**GP% 2019 2020 2021** Q1 59% 70% 74% Q2 67% 71% 73% Q3 66% 70% **76%** Q4 66% 71%
Note the combined %pt increase in GM% of 6%pts YoY and 3%pts QoQ - one of the biggest %pt increases in a quarter ever.
→ The gross margin story is very good and on an upward trend.
Adjusted operating margins are even better. A double-whammy of the improving GM’s as well as operating leverage. The metric turned positive in Q1 of this year. Operating margin is up 21%pts vs the same time last year, and it is on an upward trend!
**Op M% 2019 2020 2021** Q1 -66% -23% **1%** Q2 -50% -19% **4%** Q3 -43% -13% **8%** Q4 -35% -4%
→ The operating margin story is excellent and on an upward trend too.
My take: Both gross and operating margins are expanding at the same time, with the gross margin expansion a multi-quarter story. They guide for long-term sub GM% 75%-80%+, which to me indicates the current level is not the end level and we will see some further improvements here, possibly even in Q4.
**?Cust 2019 2020 2021** Q1 3059 6261 Q2 3789 7230 Q3 4561 8416 Q4 2515 5431
**QoQ QoQ** **Cust 2020 2021** Q1 22% 15% Q2 24% 15% Q3 20% **16%** Q4 19%
→ No sign of customer growth slowing. In fact it is up at 16% vs 15% QoQ in Q1 and Q2. I find it highly likely that the tailwinds described earlier will help this number in Q4.
What stood out for me, looking at multi-product adoption - customers using multiple modules - is that adoption of the larger bundles of modules have grown much faster than the smaller bundles. The more modules a customer uses, the stickier the relationship and the deeper the relationship with CRWD.
**4+ mods 2019 2020 2021** Q1 1468 3444 Q2 611 1895 4121 Q3 946 2281 5134 Q4 1183 2716
**QoQ QoQ QoQ** **4+ mods 2019 2020 2021** Q1 24% 27% Q2 29% 20% Q3 55% 20% **25%** Q4 25% 19%
**5+ mods 2020 2021** Q1 2191 Q2 2820 Q3 1368 3703 Q4 1792
**QoQ QoQ** **5+ mods 2020 2021** Q1 22% Q2 29% Q3 **31%** Q4 31%
Customers with 4+ modules have been growing faster than customer growth. In Q3 customer growth was 16% QoQ and customers with 4+ modules growth was 25%.
And customers using 5+ have been growing faster than customers with 4+ modules. In Q3 customers with 5+ modules grew 31% QoQ - the highest % QoQ growth this year!
My take: the pace of multi-module adoption is increasing and there is still a long runway left in current customers. 61% of customers use 4 or more modules, 44% use 5 or more and only 21% use 6 or more.
FREE CASH FLOW
Free cash flow has been improving each quarter after turning positive in Q4 of last year. This is the first full year that FCF will be positive for the whole year. So FCF also firing up nicely at $76m in Q3 and possibly >$100m in Q4. This, combined with the $1bn in cash that they are sitting with on the balance sheet makes any further share dilution highly unlikely imo and gives them a huge war chest to do further smart acquisitions like Preempt.
**FCF 2019 2020 2021** Q1 -16.7 -16.1 87.0 Q2 -35.6 -29.2 32.4 Q3 -13.1 7.0 76.1 Q4 -3.1 50.7
This is a company that is firing on all cylinders, at increasing scale with no slow-down in sight that I can detect, with consistently 80%+ yoy growth and strong QoQ growth throughout the pandemic. They’ve turned FCF and Op income positive this year, have increased their gross margins and accelerated their customer growth and have had huge success with multi-module adoption.
Their recent Preempt acquisition is likely to start paying dividends soon and the current macro environment around security favours them. Recent metrics seem to paint a picture of acceleration.
I have no doubt that they will beat Q4 guidance, and I have a strong suspicion that they will beat by a lot. I added to my CRWD position yesterday.
(Long CRWD, 21%)