My take on Crowdstrike:
Let’s start off with revenue. It was $108 million, up from $56 million yoy, and up 94% from $96 million sequentially. If you just look at those numbers in isolation they look fantastic, but I have to admit I was expecting considerably more. The last four quarters they had grown by $9, $10, $14, and $16 million sequentially, so growing by only $12 million was a disappointment.
Then we’ll look at subscription revenue. That was up 98% yoy made up roughly 91% of total revenue. Can’t complain about that.
And their ARR (Annual Recurring Revenue) is $424 million, up from $208 million a year ago, and from $90 million two years ago. That’s pretty zowie!
But how to reconcile the “paltry” $12 million in sequential total revenue growth with the huge, accelerating customer growth? I’m not kidding about huge. January fiscal year-end customers in 2016 thru 2019 were
**165**
**450**
**1242**
**2516**
Just look at that stack for a minute. Well the last two quarters they grew by 543 and 730 (equal to the number that they grew all last year), and they now have 3789. And they say that they are focusing on larger customers, and those customers are asking for longer contracts.
Let’s see if that makes sense. Longer contracts mean more dollars that they have signed up but can’t recognize yet, so that helps us to understand. Also, they have a land and expand sales plan so those 730 new customers will increase their spend in the future.
Okay, Gross margin! Was 36%, 54%, and 65% of total revenue for the past three years. This quarter it was 71%, and subscription gross margin was 74%, up from 70% yoy.
Adjusted net profit margin was -173%, -114%, and -56% the last three fiscal years, and this quarter it was -21%. That gives an idea where it is going.
Dollar based net retention rate was “over 120%” for the umpteenth consecutive quarter.
Op Cash Flow was neg $6 million, improved from neg $29 million a year ago.
Free cash flow was neg $29 million, improved from neg $36 a yr ago.
Cash was $827 million.
That gives you a thumbnail sketch.
They introduced CrowdScore, which leverages cloud-based AI to enable executives to instantly see the real-time threat level their organizations are facing, so they can quickly mobilize resources to respond.
Now here are some quotes and paraphrases from the conference call:
Year-over-year we achieved 104% ARR growth, 98% subscription revenue growth and 94% total revenue growth which was above the high end of our guidance. We also continued to expand our subscription gross margin and operating leverage.
CrowdStrike stops breaches and we are transforming endpoint security. Our clear technology differentiation is driving our growth which continues to significantly outpace the industry. In addition to stopping breaches, we help customers simplify their security stack with our single agent architecture and cloud modules. This sets us apart from others in the security industry.
To measure our success executing on our platform strategy, we look at the percentage of all subscription customers that have adopted four or more cloud modules. This percentage rapidly grew to 30% by the end of fiscal 2018 and then to 47% by the end of fiscal 2019. I’m pleased to announce that in Q2 we reached a new milestone with 50% of our subscription customers having adopted four or more cloud modules. The strength of CrowdStrike’s Falcon platform is also rapidly gaining industry recognition.
Gartner also cited our extensible platform and a CrowdStrike Store, the first and only unified security cloud ecosystem of trusted third-party applications. To help foster innovation within the CrowdStrike store ecosystem, we have established the Falcon Fund in partnership with Accel. CrowdStrike Falcon’s cloud-native open API architecture was built to provide a shared security ecosystem where developers and partners could dramatically shape the future of security in IT operations.
Through the CrowdStrike Store third-party applications can be developed utilizing the massive amounts of endpoint data that our lightweight agent already collects. The falcon Fund will invest in the next generation of innovators or leveraging the falcon platform to solve the most pressing security and IT challenges.
Through the CrowdStrike store third-party applications can be developed utilizing the massive amounts of endpoint data that our lightweight agent already collects. The falcon Fund will invest in the next generation of innovators or leveraging the falcon platform to solve the most pressing security and IT challenges.
I’d like to discuss our view of the consolidation in the endpoint security market that has occurred over the past few quarters. We have seen three of the larger NexGen endpoint players and the largest legacy endpoint security company decide to sell their business. These companies either originated as on-premise solutions or had an on-premise version and were unable to successfully transition to a true cloud-native architecture without an on-premise version.
Furthermore, we view this consolidation as a strong net positive for our business and validates that cloud-native is hard and costly unless done from inception. CrowdStrike was cloud native from day one and we enjoy first move advantage in cloud delivered endpoint protection. We have the architecture that others strive to emulate and we possess unique technology that allows us to operate effectively at scale.
We believe these transactions reflect the growing distance CrowdStrike is putting between ourselves and competitors in terms of both commercial traction and our data moat which provides us with a long-term competitive advantage. Again, this is reflected in our position in the Gartner Magic Quadrant versus all other fossilized and NexGen players.
74% of second quarter revenue was derived from customers in the U.S. and 26% was from international markets. Our rapidly growing international business highlights the global nature of the security industry, the massive market opportunity in front of us, and our continued success penetrating these markets
As you know, we entered into a partnership with Dell and SecureWorks earlier this year. We were chosen by Dell and SecureWorks over the competition in order to advance the industry’s most secure commercial PC by offering leading endpoint protection technology from CrowdStrike.
We’re seeing strong demand and a great partnership from AWS…. There’s a couple of areas that I focused on in my prepared remarks. Number one is AWS, we’re seeing a tremendous amount of momentum as customers are looking to protect those cloud workloads.
We’ve talked probably at length on sort of the core modules that we go to market with. But if you look at things like Spotlight, I can tell you, Windows OS vulnerabilities as an example, is a huge pain point for customers that are out there. There’s compliance issues, there are hygiene issues, and we’ve seen a tremendous increase in Spotlight.
And why are we seeing that? Well, it just works. It’s a scandalous technology, companies don’t want other agents on their system, if they have a scalable agent, which is going to deliver real time vulnerability information. That’s what they’re looking for. And the ability to actually have a customer try it with their own data, with our frictionless in app trial, I think has been a big boon to us. So we’re seeing a lot of activity there.
If you look at our threat intelligence modules, our Falcon X, the ability to automate a triage process and take something that would normally take eight hours and reduce that time to five minutes with our Sandbox technology, and our malware search capabilities and our integrated intelligence, these have been very, very well received. And again a tremendous - we’ve seen tremendous adoption in those areas.
So the feedback has universally been customers actually accelerating moving to CrowdStrike from our competitors as they try to transition from an on-premise solution which has been slow and cumbersome. We met with one customer that had almost 40 different controllers and one person just to manage their on-premise implementation.
And as other competitors try to accelerate their move to the cloud it actually just creates another buying opportunity for CrowdStrike. If they are going to look at a cloud vendor they might as well look at the best out there. So we like that dynamic. We view all these acquisitions as a net positive for us and we’re excited. So that’s a little bit about your first part of the question.
Q - But it would be really great to hear from you guys in terms of where and when you actually do see Palo Alto and how they stack up?
A - Well, we don’t see much of them to be candid, and if you look at the Gartner Magic Quadrant rather than me saying where they stack up, you can tell where the analysts think they stack up. Right? And it’s not even close to us. So I’ll the reader be the judge of that.
Okay, so what did I do? I added about 33% to my small Crowdstrike position, most at about $76, but about a third at about $80.50 on the way down. But please don’t just follow me. Decide for yourself. This could have been read either way, and I can be wrong and still only have a small position. I make mistakes I can assure you.
Best,
Saul
