CRWD - Moody damns with high praise

Moodys gave a non-investment grade rating to CRWD’s new unsecured note offering. Ordinarily, that would be a bad thing, but Moody confirms in its description of CRWD nearly all the reasons this board favors CRWD.


"Moody’s Investors Service also sees high leverage and gave a non-investment grade credit rating in new coverage.

While the ratings are both considered to have speculative elements and could have substantial credit risk, Moody’s said they have “expectations for rapid strengthening of CrowdStrike’s financial profile driven by high revenue growth rates and improving profitability.”

Moody’s said CrowdStrike has had strong growth in new customers and “solid” rates of revenue retention. Analyst Raj Joshi said the company’s revenue is expected to growth by “nearly 80%” in the year ending this month, and will double that over the following two years.

“We believe that CrowdStrike has structural advantages against incumbent endpoint security solutions from its cloud-based security offerings, proprietary crowdsourced graph database, and the single, lightweight agent for local detection and prevention against threats in enterprise networks,” Joshi said.

Still, CrowdStrike’s “high financial leverage, moderate operating scale, and a short operating history” are all reflected in the Ba2 rating, Moody’s said. They don’t expect CrowdStrike to generate operating income before fiscal 2024 under US GAAP accounting, but sees free cash flow reaching more than $400 million by 2023, which helping underpin the stable outlook.


Does anyone else think it is significant that CRWD chose to tap the markets using straight debt rather than equity - or even convertible debt?

To my mind this is consistent with leadership that considers that the stock is undervalued relative to where it is likely to be in the near future.



Debt is cheaper than equity, Finance 101.

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He is no fool who gives what he cannot keep to gain what he cannot lose.


In the current very low interest rate environment, many companies are using debt to get cash infusion at a low cost. Others have gone the equity-raise route.

Some of the recent reasons for raising cash include to survive during the current pandemia, pay down higher cost debt, others are funding expansion with low cost money. Per CRWD, they intend to use the proceeds “for general corporate purposes, which may include, among other things, acquisitions, capital expenditures and working capital”

To me it looks like CRWD is growing their cash position to $1.8B (current $1.05B + $750M) to increase expansion options in order to continue to grow and build bigger moats.

I am not in complete agreement with the statement “Debt is cheaper than equity”. It depends on many factors and is not always true. That said, with CRWD’s current growth rate and the low %-rate environment, I think the statement is true at this moment in time.

More Finance 101
Benefits of debt (vs equity raise) include:

  • It does not dilute ownership of the company since the lender has no equity stake
  • Interest on the debt is deductible for taxes, lowering the cost of the debt
  • The repayment obligations are known entities that are forecasted in the financials
  • The impact on earnings (and thus EPS) it temporary and ends when the debt is repaid – while the impact of equity-raise on EPS is permanent
  • Raising money via debt is simpler than an equity raise (less distractions for company management)

Negatives of debt (vs equity raise) include:

  • It adds to the fixed costs (mainly the interest payments)
  • Debt repayment is a drain on cashflow

Both debt and equity-raise lowers EPS – debt interest payments lowers earnings (the numerator) while an equity-raise increase the # of shares (denominator). But as noted above, the debt impact is temporary.

As a current holder of CRWD (4% of portfolio) I prefer to see this than further dilution of the shares by the equity-raise.
And I am interested to see what they plan on doing with the funds. I was hoping that Kurtz would give a hint a the Goldman Sachs conference, but I didn’t see anything in the transcript.


  • Long CRWD with a small 5% increase to position today

I was happy to see CRWD issue straight debt vs a convertible or secondary, thus diluting existing shareholders a bit.

Looks like the credit markets were eager to participate as the 750mm offering was 8x oversubscribed with 6B in demand. Coupon finished at 3%, below high 3’s as initially indicated. In short, credit markets view CRWD business and growth very favorably.

At 3%, that’s pretty cheap money right there and I have full faith in CRWD’s ability to generate better returns than the 3% cost.