CRWD - My Notes / Thoughts / Opinions

CRWD Quarter 3, 2022 (Q321)
I realize CRWD’s fiscal year is +1, but for continuity in how I track things I keep everything on current year, so any reference to CRWDs earnings will be -1 on the year.

Conference Call Highlights

we are seeing an inflection in new products with growing demand for our identity protection and zero trust, Humio and cloud security modules

We continue to expand our lead over legacy and next-gen vendors because of our scalability, efficacy, and differentiated offerings

Net new ARR growth accelerating and ending ARR growing 67% to surpass the $1.5 billion milestone

Gained over 1,600 net new subscription customers for the second consecutive quarter.

record bottom-line results and free cash flow, reaching a new high watermark of $124 million

We also gained significant momentum and delivered a record quarter in the public sector, including wins with educational institutions, states, and local governments, and the U.S. federal government.

Large win with CISA. *There were several sentences highlighting from a high-level different wins.

Gave a brief statement to the recognition given by analysts such as IDC, EMA, and SE labs which named CRWD as the best endpoint detection and response product for a second year in a row.

Our module adoption rates demonstrate the flywheel effect of our platform in motion with subscription customers that have adopted four or more modules, five or more modules, and six or more modules increasing to 68%, 55%, and 32%, respectively, in the third quarter.

25% of the servers they protect are in the public cloud.

Extended Falcon Horizon to support Google Cloud environments now supporting the three largest clouds…We also
expanded our relationship with Google by joining their Work Safer program…We also deepened our partnership with AWS with new features that work hand in hand with services from AWS to further protect customers from growing ransomwarethreats and increasingly complex cyberattack

The third quarter was a breakout quarter for our MSSP ecosystem with our MSSP business growing more than 30% quarter over quarter and triple digits year over year.

we generated more net new ARR from our zero trust modules than in the history of Preempt before the acquisition

We also launched the CrowdXDR Alliance, which is a groundbreaking partnership with industry leaders including Google Cloud, Okta, ServiceNow, Zscaler, Proofpoint, and Mimecast, among others.

[referring to Humio] In less than six weeks since our launch, we have already reached 100% of our six-month customer registration goal

We see a long runway ahead in displacing legacy and next-gen point product vendors.

Demand in the quarter was broad-based and well balanced, fueled by strength in multiple areas of the business

We once again ended the quarter with our strongest pipeline to date, which we believe indicates a strong foundation for future growth.

Net new ARR grew 55% on an organic basis and 46% on a reported basis

contraction and churn decreased on both a dollar basis and percent of ARR

MY Summary

There is A LOT to digest in the earnings call. CRWD continues to be an absolute horse when it comes to the execution of business. I have no doubts that they have a long time of growing at high (not hyper) rates.

When I listen to conference calls and later read the transcript, I try to not only listen to not just what is being said but also how it is being said. For example, when Kurtz stated, “gained over 1,600 net new subscription customers for the second consecutive quarter” I found that to be somewhat interesting. Here’s why, in the previous quarter he gave a specific number of 1660, and now he’s giving an approximation. To me it was a way to detract from the fact that the total customer add was less than the previous quarter, but also could be indicative that they consider 1600 to be the goal. Purely speculation on my part, but I’m curious how this will be represented next quarter.

I personally did not really care for the direct comparisons that were made and the bragging over taking customers from competitors, I just felt it to be a little tacky. The performance of the business against the competitors should speak loud enough without the need to call it out directly.
Before the earnings I made a post stating that I felt I needed to beat by 6%, it was a high expectation, and I realized that. I was solely looking at whether CRWD was going to reverse the slowdown in growth or not.

The analogy I am going to use is when a car ACCELERATES from 0 to 60mph there is a rate of change that is occurring which allows it to reach 60mph, say it overshot and when to 70mph. It had to decelerate to get back to 60. Once it gets there the acceleration has ended, whether positive or negative acceleration was the end result. To be a bit reductive the car accelerated until it didn’t.

CRWD accelerated to a point that acceleration was no longer feasible (large numbers and all), and now it is decelerating towards its steady state growth. I am not going to hazard a guess as to where CRWD to achieve its 60mph, but I believe as it gets closer, we will see the tapering of the deceleration. Thus, I view CRWD to be a safe place to keep money in, but not the best for growth.

With a 13.3% operating margin and 32% FCF margin it’s hard to not like the balance sheet, and with the expansion of big names and new customers in the call, it’s easy to see a trajectory of high growth.

Regarding Q4 scenarios outlined below.

To Maintain Status Quo As I state below, I don’t think the guide is terrible, and probably is becoming more accurate as the business matures. I am predominantly looking the sequential growth percentage, and the implications on the TTM. I believe 3% keeps the story intact for both of those.

To Beat Using Past Beat expectations it comes in only 1% more than what I believe to maintain the status Quo. This is part of the reason why I think CRWD is a safe investment. I give this a very high likelihood of achievement.

To Stop deceleration would require one of the best quarters on record for CRWD. While I believe the deceleration will slow down from current rates, I do not believe or expect it to be sudden, if it did it would be quite a surprise, and a great one at that. However, I do not see CRWD posting a sequential add that would be ~20% of the total revenue growth. Q4 of 2019, they posted 21.6%. For the past seven quarters they have not posted within 3.4% of that.


$380.05M off a guide of $363.3 for a beat of 4.0% - Resulting in 63.5% Y/Y growth. That is $42.36 sequentially for an increase of 12.5% on the quarter.

TTM revenue was $1,285.47 – Resulting in 68.8% Y/Y. That is $147.6 sequential for an increase of 13% on the quarters TTM.

      Sales (TTM)   TTM%    Seq	    Seq %
Q121	999.2	    77%    124.7    14%
Q221	1137.9	    74%	   138.7    14%
Q321	1285.5	    69%	   147.6    13%
Q421	1441.1	    65%	   155.6    12% *Guided value

Sequential revenue add in 2021, for the first three quarters has been 14.3%, 11.5%, 12.5%. This compounds to 65.5% compared to 2020 52.8%. I would attribute 2020 to being held down in the covid quarter.

At the guide CRWD would have 78.4% compared to 74.1% in 2020. [as a side note: seeing this go up while revenue y/y percent goes down is what I could consider normal for a company who is growing strong off a strong base].

	Rev	Rev %	Beat	Seq    % seq
Q121	302.80	70.0%	4%	37.9	14.3%
Q221	337.69	69.7%	4%	34.9	11.5%
Q321	380.05	63.5%	4%	42.4	12.5%
Q421	412.30	55.6%	0%	32.2	8.5% *Guided value

Regarding ARR

Burt Podbere, CFO - stated “we continue to expect seasonality in net new ARR to be less pronounced relative to prior years as we move from Q3 into Q4.” I interpreted that to mean I should temper my ARR expectations in Q4. Meaning ARR Growth is probably shifting towards stronger organic, rather than having net new adds pulling it up. Using proportionality, it would come in at an add $206 for $1,716 total. I will personally be looking for ARR of around $1700. Mainly because the sequential ARR add has remained relatively stable over the last 3 quarters, and I do not see a reason for that story to change.

	 ARR 	 ARR Seq    ARR %    Seq %
Q121	1190.0	  140	    73%	     13.3%
Q221	1340.6	  150.6	    70%	     12.7%
Q321	1510.0	  169.4	    66%	     12.6%
Q421	1700.0	  190	    62%	     12.6%


Ended Q221 with an overall TTM accelerations of -2.99%. This decreased to -3.25% in Q321. Individual Quarter rates are as follows:

Q121	-4.30%
Q221	-3.43%
Q321	-5.13%
Q421 	-4.92% *guided number

Customer Data

Net customer adds came in 53 less than Q221. I am not sounding the alarm on this, but it will be one of the metrics that I look closer at in subsequent quarter numbers. I think the perfect storm that would hurt CRWDs overall performance would be a rapid decline in customer adds combined with weak organic ARR growth. I do not suspect this will happen given everything that was discussed regarding customer information in the conference call.

Q421 Thoughts

At the guide CRWD is looking at quarterly revenue Y/Y growth to be ~8% to 55.6%, sequential growth to be at 8.5%. TTM to be at 63.9% with TTM sequential at 11.5%.

This guide by itself is not bad, and what is good about it is that a low beat keeps the overall metrics stable in Q4. The beat also shows TTM will decelerate less in Q4 (-4.9%) than it did in Q3 (-5.1%), which is also positive. I do not remember who said it, but I agree with whoever posted that CRWD is a prime candidate for the potential of an earnings surprise.

Overall, I conclude that the guide result and a safe expectation are very close, which is why I agree that they are a candidate for a surprise. This is also another reason why I believe CRWD is a safe investment, while not being a prime candidate for upside growth. Just because the data supports a surprise could happen that is hope, and not a strong investment criteria (at least for me).

To maintain status quo I am putting this at needing $424.7 in revenue for a 3% beat.

	Rev	Rev %	Beat	Seq	% seq
Q121	302.80	70.0%	4%      37.9	14.3%
Q221	337.69	69.7%	4%	34.9	11.5%
Q321	380.05	63.5%	4%	42.4	12.5%
Q421	424.67	60.3%	3%	44.6	11.7%

      Sales (TTM)  TTM  Seq TTM   Seq %
Q121	999.2	  77.3%	  124.7	  14.3%
Q221	1137.9	  73.9%	  138.7	  13.9%
Q321	1285.5	  68.8%	  147.6	  13.0%
Q421	1445.2	  65.3%	  159.7	  12.4%

To Beat using past beat expectations would expect $428.8 for a 4% beat.

         Rev	Rev %	Beat	Seq     % seq
Q121	302.80	70.0%	4%	37.9	14.3%
Q221	337.69	69.7%	4%      34.9	11.5%
Q321	380.05	63.5%	4%	42.4	12.5%
Q421	428.79	61.9%	4%	48.7	12.8%

       Sales (TTM)     TTM %	Seq TTM      Seq %
Q121	999.2	       77.3%	124.7	     14.3%
Q221	1137.9	       73.9%	138.7	     13.9%
Q321	1285.5	       68.8%	147.6	     13.0%
Q421	1449.3	       65.7%	163.9	     12.7%

To Stop deceleration would require revenue to come in at $454.77 for a beat of 10.3%.

	Rev	Rev %	Beat	Seq Growth	% seq
Q121	302.80	70.0%	3.66%	   $37.87	14.3%
Q221	337.69	69.7%	4.10%	   $34.89	11.5%
Q321	380.05	63.5%	4.04%	   $42.36	12.5%
Q421	454.77	71.7%	10.30%	   $74.72	19.7%

       Sales (TTM)  TTM %      Seq TTM      Seq %
Q121	999.2	   77.3%	124.7	    14.3%
Q221	1137.9	   73.9%	138.7	    13.9%
Q321	1285.5	   68.8%	147.6	    13.0%
Q421	1475.3	   68.7%	189.8	    14.8%

Post Q321 Headlines

Not all headlines are meaningful

Positive / Negative Talley – 6 Positive / 0 Negative
Last 30 Days 100% Positive: 6 Positive / 0 Negative

1.(+) 12/20/21 CrowdStrike Adds New Strategic Partners To Groundbreaking CrowdXDR Alliance; Terms Not Disclosed

2.()12/20/21 Daiwa Capital initiates coverage – Weighs CRWD as Outperform with a PT of $224

  1. (+) 12/16/21 CrowdStrike APAC Named Frost & Sullivan Endpoint Security Industry Company of the Year and was also recognized as a Customers’ Choice by Gartner

4.(+) 12/15/21 CrowdStrike Wins Tenth Consecutive AV-Comparatives Award, Highlighting Falcon’s Proven Efficacy and Market-Leading Technology

5.()12/14/21 JP Morgan Upgrades from Neutral to Overweight PT of $255

6.(+) 12/14/21 CrowdStrike Falcon Detects 100% Of Attacks In New SE Labs EDR Test, Winning Highest Rating Of All Vendor

7.(+) 12/7/21 CrowdStrike Receives Global Recognition as a Pre-Eminent Market and Technology Leader in Cybersecurity

8.(+) 12/7/21 CrowdStrike Falcon Wins Best Cloud Security Technology Solution in Annual CRN List

9.() 12/2/21 CrowdStrike Ranked Number One on 2021 Fortune Future 50 List

10.() 12/2/21 Deutsche Bank Maintains Buy on CrowdStrike Holdings, Lowers Price Target to $260(Benzinga) CrowdStrike Holdings Price Target Cut to $330.00/Share From $360.00 by Mizuho(Dow Jones) Mizuho Maintains Buy on CrowdStrike Holdings, Lowers Price Target to $330…


I personally did not really care for the direct comparisons that were made and the bragging over taking customers from competitors, I just felt it to be a little tacky.

I agree. This aspect of Kurtz’ more recent discussions with analysts and the press got me thinking about where the company is going next.

Kurtz is a fighter. He is a fast-car driving hyper-aggressive man - and this aggression has been one of the key things that has propelled the company forward to reach its current state.

That feels to me to be great when you are the scrappy challenger taking on the old dogs. But it starts to lose its appeal and effectiveness once you reach a certain scale and maturity. That attitude simply doesn’t work when you start to become the incumbent.

Now Crowdstrike is not the incumbent legacy provider, but they do have characteristics as the incumbent next gen provider. And recently the legacy providers as well as newer companies like SentinelOne have been taking CRWD on more successfully with their own next-gen tech.

And Kurtz responded in his normal fashion. Attack. He has been attacking and humiliating Microsoft for years - even in front of the US government more recently. And he attacks McAfee and Symantec as a matter of course. But he does not react well to being in the cross-hairs himself, hence he now attacks SentinelOne too.

His Co-Founder and ex CTO Dmitri Alperovitch left in Feb 2020 and he was the tech brains and therefore a big part of the formula for success at Crowdstrike. Although you would never really hear Kurtz speak of him (contrast this with Cloudflare or Monday’s co-founders). I wonder if there was a fight there that led to his departure, and I also wonder if his successor is of the same calibre, and whether, perhaps the loss of Dmitri is starting to be felt.

Kurtz seems to be always fighting. With adversaries, with ex colleagues (read this brilliant piece by Broadway Dan: ) And while he was fighting against the incumbents with his own newer and better tech, all went well.

But is he fighting too many fights now? Fighting analysts who say there is too much competition, fighting upstarts like S, fighting more, and better adversaries, fighting Microsoft, Symantec and McAfee? Fighting to retain customers - probably a new dynamic for them - as well as fighting to get new ones?

Don’t get me wrong, I love this company and Kurtz as leader. But lately the narrative seems to have been changing for the worse at the same time as the numbers started showing signs of deceleration, and it feels to me like he and his company is more on the back foot. There was no acceleration of business from the US Government and the fallout from the Solarwinds hack (yet?) like we had hoped, but for others such as ZS there was. They did not perform well in the MITRE attack evaluation, so he dismisses it (… ), he spends almost the entirety of discussions at “fireside chats” talking down and fending off questions around competition, and in the quarterly reports he increasingly lashes out at the competition. And he played defence with the XDR alliance, not offence imo.

All in all it still is a great company, but with some headwinds and some cracks appearing whereas the rest of my portfolio seem to have only tailwinds. And I agree, given that the share did not really move for the best part of a year, next Q could be a surprise. But many other names were also recently punished, including S.

Accordingly I recently switched my full CRWD position into S.



WSM, that was excellent elaboration on the sentiment of Kurtz, thank you!

I, and probably you, do not necessarily expect Kurtz to suddenly have a fundamental change in personality. I however am disappointed that he is not “maturing” with the business. I do not think his attitude is unique among CEOs, rather I believe most exercise more discretion.

Broadway Dan’s piece was top notch, and really had me thinking if the traits that got Kurtz to his success will ultimately be his demise, but that’s speculation, and not necessarily meaning the demise of the business.

Not speaking nor acting in a manner that signals “I know we have the best in the market” and being defensive is a red flag. Some of it could be justifiable, SentinelOne isn’t above reproach in this area, they have a whole webpage dedicated to show how Crowdstrike comes up short. Kurtz being defensive might be completely rational, but as it has been pointed out he seems to always have a bone to pick.

I am not ready to pull the plug on CRWD just yet, and I could be wrong, but I want this whole story to develop more, I don’t believe it to be complicated, just something to put on a short leash. I have substantially trimmed out of CRWD this year, but as of today I plan on keeping my small ~6% position of stock and long calls through next quarter and will reassess.