CRWD Operating Margin--why so low?


Pardon the seemingly silly and perhaps obvious but to this non-accountant perplexing question: Crowd just reported a 7% operating margin. Why is this number so low? How would you explain to a non-accountant what that really means? Especially if 293 million is free cash flow, or 33% of revenue?

In other words, Crowd, despite the amazing margins and business model only kept 7% of their income? Monkey is getting something basic horribly wrong but has been looking at his screen too long to figure it out.

Another way of this not being a problem is that operating margin has been increasing and getting better each quarter, so in some contextual sense it’s obviously a non-issue. But in absolute terms, isn’t 7% still a really low number?

Please help a Monkey out.



If you take a look at the cash flow statement from the earnings release you can see a lot of non-cash things added back in. Namely, deferred revenue (the biggest), stock-based compensation (pretty big), and depreciation and amortization (not as big). Deferred revenue is actual cash coming in the door now, stock-based comp. and d&a are non-cash accounting costs.

With SaaS companies you typically see a very non-linear margin ramp as scale is reached. For example, CrowdStrike’s total costs minus stock-based compensation has only grown at a little over half the rate that revenue has over the last 3 years. Stock-based comp is high now, but if you model it to ramp down to roughly 6% of revenue 10 years from now (so on par with something like Google or Adobe) while having all the other total costs ramp at 75% the pace of revenue (so a much more conservative ramp than CrowdStrike has achieved so far), it’s pretty easy to model low-mid 30% margins ten years out, realistic to see mid-high 30% margins, and possible to achieve low 40% margins.

CRWD Q4 earnings statement:…



Hi M,

The difference between Gross Profit and operating expense equates operating income. For CRWD, operating expense includes SG&A and R&D. Selling (Marketing) is the biggest component. For SAAS companies, the modus operandi is Land and Expand. Therefore the operating margins are lower for most SaaS companies even though gross margins are so high. Eventually when they have acquired enough customers there will be a tipping point when the operating margins will start to improve and you will see net profits jump as well as a result.

Hope that helps. I am an engineer by profession so if there are any errors feel free to correct me.



I know you are using the FY number, but the Q4 number was 13%. And it’s hard to argue with how it is trending:

non-GAAP Operating Income (20%+ target)				% Revenues					
	Q1	Q2	Q3	Q4	YR			        Q1	Q2	Q3	Q4	YR
2018				-$34.83	-$118.30		2018				-90.0%	-99.6%
2019	-$31.23	-$28.00	-$28.57	-$27.98	-$115.78		2019	-66.0%	-50.3%	-43.0%	-34.8%	-46.3%
2020	-$21.88	-$20.64	-$16.45	-$6.67	-$65.64		        2020	-22.8%	-19.1%	-13.1%	-4.4%	-13.6%
2021	$1.17	$7.83	$18.94	$34.42	$62.35		        2021	0.7%	3.9%	8.1%	13.0%	7.1%

It is a testament to just how quickly CRWD has scaled that both R&D and G&A margins are already within management’s long-term target range less than two years after going public. S&M is still above the target range, but I have no problem with CRWD spending a little cash to reach out to all those disgruntled MSFT and SentinelOne customers.

I’d expect operating income will continue to increase steadily as we go.