CRWD Apr 8th Investor Briefing

Investment Analysis Clubs Saul’s Investing Discussions
#1

Very interesting Crowdstrike Investor Briefing yesterday

Webcast (95 min): https://crowdstrike.wistia.com/medias/1lnesevuc5
Presentation deck: https://ir.crowdstrike.com/static-files/2852082c-2ce8-4d5d-9…

My main take-aways:

CEO George Katz – first 10 min

Outlines how he sees ARR growing from $1B today (fiscal 2021) to $3B+ by 2024 (fiscal 2025) – pg 7-20
Key elements

  • Innovate: from 10 modules at 2019 IPO to 19 modules today
  • Capture Secular Trends: trends driving demand (security transformation)
  • Expand TAM: from $25B at 2019 IPO to $36B today to $44B 2023 with current portfolio to $106B in fiscal 2025 including new offerings
  • Gain Market Share & Increase Wallet Share: still early days in customer acquisition vs cloud pioneers (good graph pg 17)
    Interesting graph pg 9 contrasts CRWD Revenue Run rate, Rule of 40 and Payback Period vs other “Saul” companies

Briefly discusses Zero Trust Framework (pg 21) and Humio acquisition (pg 24)

CFO Burt Podbere – min 10 thru min 39

Discusses the “math to the path” (to $3B+)

  • Pg 36 has an ARR bridge from $1B to $3B ARR FY25 assuming $450M net new ARR each year (= same as in FY21, TTM)
  • Pg 37 illustrates how to get to $3B+: each +10% CAGR on net new ARR = +$500M on FY25 ARR
  • Pg 40 breaks out customer count growth FY17 → FY21 for different sizes of customers
  • Pg 43 shows ARR growth with top accounts (to be a top 400 ARR customer today, you need a minimum ARR which would have made you a top 25 customer FY17)
  • Pg 47 has module adoption graphs FY18-FY21 for 4+, 5+ and 6+ modules adopted
  • Pg 54 shows the FY25 targets for various metrics. Most interesting: subscription GM target increased to 77-82%+ (from 75-80%+ at IPO) and (new) Free Cash Flow target at 30%+

Q&A Q&A – min 40 thru min 95
I found this less compelling, but it does add some more depth/color if you have the time to listen

Thx to all who contribute to this board and make it happen - have been a quiet lurker for years and benefited tremendously!

Fool on, Aart

95 Likes
#2

I would have thought that such an upbeat investor presentation and the reiteration of CRWD’s positive outlook would have driven the price higher in a similar way to OKTA’s price reaction to their investor presentation this week. Perhaps the market did not get excited about the statements on CRWD’s expanding TAM.

The power of CRWD’s platform is demonstrated in the financial data, as 63% of CrowdStrike’s subscription customers have 4 or more Module Subscriptions. This number has grown from 47% two years ago. The growth of this metric is important to CrowdStrike’s growth, as they have expanded their TAM through acquisitions and the launch of new modules that cover untapped areas of cybersecurity.

CRWD remains my highest conviction / largest holding so I guess I was hoping for a better price reaction

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#3

$3bil ARR by 2024 would be a sharp dropoff in growth. This is something like a 32% CAGR over that time. I hope that’s just a bare minimum of what they expect.

Bnh

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#4

Yes it would seem that the 3bn target is being viewed as conservative. According to an article on Seeking Alpha earlier today:

'Needham analyst Alex Henderson expects CrowdStrike to exceed the FY25 ARR target and notes that the company updated its total addressable market estimate to $106B, a “major increase.” Needham has CRWD at a Buy rating and $275 price target.

Stifel’s Brad Reback also sees CrowdStrike’s ARR target as conservative, pointing out that the outlook likely includes little to no contribution from log management company Humio, which CrowdStrike acquired for $400M in a deal that closed last month. Stifel maintains a Hold rating $240 price target’

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#5

I watched the video instead of reading, which I rarely do, but it’s my largest position after all. I found the CEO and CFO very positive. Almost euphoric in fact. I added a little to my very large position when it was down early today.
Saul

41 Likes
#6

Thanks, Aart. One of the catalysts for Crowdstrike’s growth is the partnership they have with AWS (Amazon Web Services). I’ve written before that their Falcon endpoint security can protect thousands of containers running on AWS, and it works very well to complement threat detection services like Amazon GuardDuty and Security Hub.

They said in the investor conference that the ARR revenue Crowdstrike got through the AWS Marketplace (which is like an App Store for AWS) has increased 650% to $50 million.

https://www.investors.com/news/technology/crowdstrike-stock-…

-Ron

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#7

One aspect I find key to these SaaS companies, and which CRWD and DDOG have shown, is as follows:

Software has behaviour. Those using it must understand its behaviour before leveraging its qualities. The shorter the time to understand, the quicker the leveraging happens, the more likely that software is to be used. Couple that with high value features, and the more difficult it becomes to extricate that software once it is implemented. This is particularly so for security and monitoring software. AND companies will build tools around this software. This is also why average software is so hard to remove once it has been implemented - people would rather live with the headache than take it out.

CRWD and DDOG have VERY simple on-boarding procedures of a high value product. I see them both with a huge runway for years.

Long both.

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#8

Morning, long time lurker. I appreciate all the work that goes into this board, and this is the first time I can kind of contribute.

You hit the nail on the head with that. The good SaaS companies make it to where switching, or discontinuing the service is not worth the headache.

I own a pest control company. Back in 2010, I started using an SaaS company for our routing, scheduling, inventory system. Granted, this company is not CRWD, or DDOG, but their software saved tremendous time from how we were operating before. This was a win win for our company, we were already spending money on software, and this was saving us a ton of man hours.

Since 2010, our monthly bill has quadrupled if not more. They have added a ton of different modules that offer specific needs. You want GPS tracking, sure we offer it for an upgraded price. You want the ability to send review requests to your customer, no problem, just add it to the bill.

It has become a bitter sweet relationship with the company, I’m not displeased with the service because they are offering everything they said the software would do, we are just paying a premium for the service. The biggest problem is, I could never imagine running the company without the software, and trying to even switch to new provider would be months, if not years, getting things switched over and people trained. Even if we did decide to switch companies, we would be switching to another company that is structured the same way. We might save a little bit of money per month, but is the headache worth it.

I think the bottom line with companies like CRWD and DDOG, is they offer high value product, and once they get in the door, the sky is the limit.

93 Likes
#9

All the messaging from the Conference, from both Kurtz and the CFO, stated that the 3 Billion ARR by 2025 ‘is if they do nothing else going forward…no more modules, no ramping up of S&M, no continued exponential growth of workloads to protect, nothing. It’s kinda like they can’t help but grow to 3 Billion ARR at this point!

Quote of the Conference, IMO, in the QnA: CFO, We have customers that are so enamored with the products that they say, “whatever more you make, we want it!”

I watched the video and read through the slide presentation along the commentary.

I’d add more,here if it wasn’t already 26% of my total poertfolio.

Jason

12 Likes
#10

I own a pest control company. Back in 2010, I started using an SaaS company for our routing, scheduling, inventory system. Granted, this company is not CRWD, or DDOG, but their software saved tremendous time from how we were operating before. This was a win win for our company, we were already spending money on software, and this was saving us a ton of man hours.

Thanks for speaking up, Bugman! (great handle, btw)

What’s the company called? Even if it’s not publicly traded now, it would be interesting to know one more name in the landscape.

Thanks,
Bear

1 Like
#11

I’d add more,here if it wasn’t already 26% of my total portfolio.

Yes this presentation was an explicit roadmap projecting from the past without including growing expansion possibilities. I’ve seen nothing as clear or convincing elsewhere.

Adding more is practically a no brainer at this point. The tougher question is what to trim?

Everything? Trial holdings? Lower conviction holdings? Even the second tier companies seem pretty strong and they continue to issue news releases describing enhanced services.

Without a compelling reason to sell I will probably opt for the status quo.
draj

7 Likes
#12

A few notes from the presentation

In the presentation CRWD showing a breakdown of ARR from AWS marketplace. They don’t give any numbers except a 50 million dollar mark. I broke out my “fancy” image editor and measured the AWS ARR graph down to the pixel. I used their 50 million dollar mark to calculate how much money each pixel was and then measured the relevant bits below. I have a resolution of ~107,991 dollars per pixel measured so the numbers below should be relatively accurate.

Measured existing ARR in q4 2121 was 48 million.

Here is new ARR from AWS marketplace over the last 5 quarters. Looks pretty darn good and pretty darn material to me.


ARR in millions
2021                                                              2020
Q4               Q3                  Q2               Q1          Q4
29.7           23.4                7.2              7.8            4.9

I also wouldn’t be surprised if they beat they GM targets. I’d guess they increased their GM from 75-80 to 77-82% based on the humio acquisition. Presumably that will also fall to the operating margin and FCF.

Last thing of note. THey expect 5-6% dilution from SBC. Not terrible, not great. If that is what they need to do to attract and keep top talent then I am all in.

-e

30 Likes
#13

draj,

I’ve seen nothing as clear or convincing elsewhere… Trial holdings? Lower conviction holdings? Even the second tier companies…

I understand the challenge but you seemed to answer the question yourself. You mention you’ve seen nothing better elsewhere yet mention you have trial, second tier, and lower conviction holdings. If you have that high of a certainly on CRWD, you should certainly sell a portion or all of some (or all) of those holdings to reallocate.

Not a criticism, just an observation.

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