CRWD Q3 BLOWOUT

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Wow!

Revenue up 98% YoY (and Subscription revenue up 98% as well)

Gross Profit up 99% YoY

OpEx up only 47% YoY

Subscription customers up 112% YoY - WOW!

Cash flow of $38.6 million (up YoY from -3.6 million)
FCF of $7.0 million (up YoY from -13.1 million)

Full Year Revenue Guidance raised from 451.8 million to 468 million.

Full Year EPS guidance revised from a loss of $(0.65) – $(0.62) to a loss of only $(0.53) – $(0.52).

I don’t see anything that’s not perfect. Not sure why the shares aren’t up 20%+, but I just bought some more at $53. Wish I would have gotten them when it dipped to $49 or $50.

The stock market is weird.

Bear

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Revenue up 98% YoY (and Subscription revenue up 98% as well)

Correction: Total Revenue was up 88% YoY, and Subscription Revenue was up 98%.

Still, just awesome.

Bear

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I don’t see anything that’s not perfect. Not sure why the shares aren’t up 20%+

Top end of Q4 guidance would be +77% for total revenue. If they beat Q4 by the same amount they beat Q3 vs the guide from three months ago, they’ll do +80% in Q4.

that would make the growth rates on total revenue trending:

Q4’18 +108%
Q1’19 +103%
Q2’19 +94%
Q3’19 +88%
Q4’19 +80% (if they beat the top end of guidance by same percent as this past quarter)

Still nice growth rates, but definitely decelerating at a decent clip, and there is a lot of growth baked into their valuation already

-mekong

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Still nice growth rates, but definitely decelerating at a decent clip, and there is a lot of growth baked into their valuation already

Is there? I’ve got it at a PS of 26.5 which is less than OKTA’s, and it’s growing literally twice as fast.

Bear

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Based off Finviz, crwd has a PS of 33 and OKTA has a PS of 28.62
This was at the close so now crwd’s will be a little higher and okta’s a little lower.
Still i bought more shares of crwd and its currently a larger position then okta.
I’m unsure of what to do with OKTA. Listening to the conference call now but I keep going back from selling a few shares to buying a few shares after hours.
Would like to buy more if it drops to 110 at the open.

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The main difference I like is CRWD is showing a pathway to profitability and also said they expect to be fully profitable in 2022 in their earnings.
OKTA has been increasing expenses and jumps up and down towards GAAP and Non GAAP EPS. So there isn’t a clear path to profitability although I do believe in the company and have more confidence in okta then I do ZS. But as stated it’s already very highly valued for a company with decelerating growth and unclear profitability

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Is there? I’ve got it at a PS of 26.5 which is less than OKTA’s, and it’s growing literally twice as fast.

Don’t get me wrong, I own some CRWD (albeit only a 2% position) so I hope it goes up.

Comparing it to OKTA, then yeah, but I consider OKTA about as expensive as any companies in the Saul-niverse as far as I’m concerned. I would be putting new money into CRWD before OKTA too, but I believe that if CRWD’s growth rate drops into the low 70%'s 12 months from now and then into the high 50%'s or low 60%'s 24 months from now, I think an investment in TTD, MDB, or AYX will perform a lot better over the next two years (I have much larger stakes in each of those three).

Then again if CRWD stabilizes in the mid 70%'s for 24 months (which I think could be possible, which is why I am not selling) or even accelerates at some point, it will probably be a huge winner.

-mekong

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I believe that if CRWD’s growth rate drops into the low 70%'s 12 months from now and then into the high 50%'s or low 60%'s 24 months from now, I think an investment in TTD, MDB, or AYX will perform a lot better over the next two years (I have much larger stakes in each of those three).

Let’s take a look.


This Q	125	89%
3 mo	145	81%
6 mo	170	77%
9 mo	190	76%
12 mo	215	72%
15 mo	240	66%
18 mo	270	59%
21 mo	300	58%
24 mo	330	53%

Your slow down gets us to more than $1.1 billion in revenue 2 years from now. At a PS of 20 that would give us a $22 billion company vs $11 billion today, so roughly a double in 2 years.

Do you really think TTD and MDB can do better? If so maybe I need to see your math. :slight_smile:

Bear

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Your slow down gets us to more than $1.1 billion in revenue 2 years from now. At a PS of 20 that would give us a $22 billion company vs $11 billion today, so roughly a double in 2 years.

Do you really think TTD and MDB can do better?

Yes, I do.

If so maybe I need to see your math. :slight_smile:

As luck would have it, I am a numbers guy, so let’s take a look:

CRWD

I agree with your math, and we’re looking at $1.1 billion in revenue 2 years from now.

I will make the assumption that their gross margin percentage stays about the same as it has been over the past twelve months, 69%, so that would mean that they keep $770 million of GM dollars in year 2.

Now before I even get into comparisons to the other companies, I should reiterate that this would be very good performance and shareholders will probably beat the market averages holding CRWD with this type of growth.

TTD

Over the past 12 months (last four quarters reported, 10/1/18 to 9/30/19) TTD had $605 million of revenue and grew at 44% compared to the previous 12 months (10/1/17 to 9/30/18)

If I assume that they will grow at 38% and 32% over the next two years, that puts them at $837 million revenue during the next 12 months, and $1.1 billion in year 2.

Because TTD receives a fixed percentage fee from their customers, they record revenues net (e.g. only count their commissions, not the gross amount they collect from customers (which is much higher, probably a multiple of 3x or 4x, than their reported revenue). So their gross “reported” revenue is also the same as their gross margin. There are no cost of sales to deduct since they are already netted out of their revenues.

So in year 2 TTD will keep $1.1 billion of margin compared to $770 million for CRWD, about 43% higher.

and TTD is valued today at only $10.8 billion, so their shares will cost you less than the $11.5 billion market cap for CRWD, which will probably be closer to $12 billion tomorrow if today’s after-hours action holds.

And that doesn’t factor in any spike in TTD’s business in 2020 due to the election year which should be a boost to advertising sales. and TTD is already profitable today, which CRWD is not. and TTD generated more than $88 million in operating cash flows in the first nine months of this year compared to $33 million for CRWD.

The counterpoint, of course is that two years from now I am showing CRWD still growing at 55% compared to only 32% for TTD (granted I think that is pretty conservative for TTD), so yes, CRWD should have a higher multiple two years from now assuming their opex or dilution don’t get out of hand.

So given that you would pay less for TTD today, and I believe they will be making significantly more money than CRWD two (and three) years from now, I would put more of my eggs in TTD. If CRWD keeps their growth in the 70%+ range for the next couple of years then CRWD probably looks as good, if not better, from here (again, I think it’s possible and I own CRWD because I am hoping they do), but I think the risk to get there is a lot higher with CRWD.

MDB

MDB doesn’t report the 10/31 quarter until next week, so since we already have that quarter for CRWD, to keep it apples to apples, for now I am going to pencil in the top end of the guidance that MDB gave three months ago, $100m, although they are likely to beat this, but let’s just use the $100 million to be conservative. With this, the past 12 months through 10/31/19, MDB would have $605 million of revenue and would have grown at 73% compared to the previous 12 months (ending 10/31/18)

If I assume that their growth will decelerate to 65% and 55% over the next two years, that puts them at $957 million revenue in year 2. Assuming their margin stays at 69%, that would be $665 million GM dollars they keep in year 2.

So in year 2 MDB will keep $665 million of margin compared to $770 million for CRWD.

But MDB is only valued at $7.4 billion today, compared to $12 billion for CRWD, and these projections put both MDB and CRWD at 55% in year 2 so the multiples shouldn’t vary too greatly 24 months from now.

I would rather pay $7.4b for $665m of GM in two years than $12b for $770 million two years from now.

So that’s how I look at it. I acknowledge that there are lot of other ways to compare them and some of the assumptions I have made above could turn out to be way off, but this is what my calculations anticipate today. My gut also tells me that where TTD is positioned, with the elections next year and connected TV becoming more and more mainstream, and where MDB is positioned, with more and more of the world’s databases moving to NOSQL, gives them really high likelihood of continued success and growth over the next five years and beyond. Crowdstrike may do even better, but I just can’t visualize their business quite as clearly as I feel I can TTD and MDB which also causes me to hold back a little on CRWD.

It’s a good thing we’ve had this discussion on CRWD today. Who would have guessed that OKTA and ZM both reported today and not a single post on this board on either of them?

-mekong

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MDB would have $605 million of revenue and would have grown at 73% compared to the previous 12 months (ending 10/31/18)

If I assume that their growth will decelerate to 65% and 55% over the next two years, that puts them at $957 million revenue in year 2

sorry there was a typo above as that $605m number for MDB revenue for the past 12 months should say $374m

all of the other numbers that follow are correct, as the $374m growing at 65% and 55% is the $957m for year 2.

not sure how I mis-typed that, but it doesn’t change any of the further numbers or comparisons, which were still calculated correctly.

apologies for any confusion

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this is a great discussion…

mekong - one thing I dispute is your notion of TTD entire revenue as gross margin.

They dont spell out the word gross margin… however, they report platform and operations cost which is equivalent to COGS for SAAS companies. thats the cost of running 90+ datacenters they run… and that gets subtracted to get to equivalent gross margin for apples to apples comparison, at-least in my math.

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And the other thing I would say is - its not just what multiple to GM$ you want to pay 2 years from now… you also need to account for what rate of growth you expect after that point when you look at that multiple…
in other words, as long as I expect CRWD to grow at >20% higher growth rate, I will be willing to pay higher multiple compared to lower growth rate…

last point is - CRWD has been increasing its GM% over last few quarters as scale truly leverages its infrastructure cost… whereas TTD’s GM% actually reducing for last few quarters…

yes, a back of the napkin match starts getting a little complex… but I think this is minimum… if one tries to compare expectations based on extrapolation like we are doing on this thread…

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nilvest

Yes, all good points. Regarding CRWD getting a higher multiple when growing at 20% faster two years ago, I did make that point in the next to last paragraph of the TTD section above. I just think they will still be far enough behind TTD with more risk to get there, where I believe TTD’s market cap would be higher two years from now, but I could be wrong.

With the platform operations costs, I definitely do acknowledge that TTD includes some of the same types of things (hosting costs etc) that CRWD is putting into their cost of sales. However, in that line, TTD also includes things like amortization of costs to acquire technology, which really isn’t a direct cost of sale and probably corresponds more closely to the types of costs that CRWD would include in operating expense.

But more importantly, I think the nature of CRWD’s business means that hosting costs are going to go up more directly with additional customers and revenues than it would for TTD. I’m just going to make up numbers here so take these with a grain of salt, but if CRWD’s revenue doubles, it’s hosting costs may not exactly double, but might go up 60%, 75%? Whereas TTD’s hosting costs probably scale a lot more. If their revenue doubles, maybe TTD’s hosting expense goes up 10%? 20%? Again, I’m just guessing at these numbers but I would be willing to bet that this is why CRWD puts these into cost of sales while TTD has them in operating expense.

So I would not argue with anyone whose analysis netted platform operations from TTD gross margin (although I still don’t think I would in my own analysis). However, IF you do net TTD’s margin by the platform costs, let’s take a look at what that means for each company’s resulting operating expenses. I am going to use just the last 9 months since they are already laid out YTD in the latest 10-Q:

(in thousands)

TTD as reported:

$445,114 Revenue/GM
$385,568 Total Operating Costs
86.6% Opex as a percent of GM

TTD adjusted to move platform expense up to cost of sales:

$336,201 GM net of platform exp
$276,544 Operating costs net of platform exp
82.2% Opex as a percent of GM

CRWD as reported:

$231,093 Gross Margin
$346,026 Total operating expenses
149.7% Opex as a percent of GM

So my point here is, if we are going to move platform exp up to GM for TTD, then TTD would also deserve a huge amount of credit for having dramatically lower operating expenses than CRWD, which should give TTD a leg up, valuation wise as well. I tend not to focus on opex as much when comparing tech companies relative to one another because I think about how a possible acquirer would value them if they can strip out a good portion of their opex and try to fold the GM$ into their company (although it hasn’t happened much to our companies in the past couple of years, I bet we’ll see more of this in the next year or two as some of our companies probably will get acquired).

The discrepancy between 82% opex/GM for TTD vs 150% for CRWD also supports, in my mind, that everything in TTD platform operations really isn’t cost of sales for TTD.

last point is - CRWD has been increasing its GM% over last few quarters as scale truly leverages its infrastructure cost… whereas TTD’s GM% actually reducing for last few quarters.

on this point, we are just going to disagree about what constitutes TTD GM% depending whether we consider much of what is in platform operations costs correspond with COS or OPEX at CRWD. Therefore, I’m not so sure that TTD’s true GM really is reducing. But regardless, your point that CRWD’s GM% is increasing is a positive and would certainly factor into a more detailed valuation analysis.

Hopefully the above didn’t come across as too defensive, as I do appreciate nilvest making good counterpoints to mine and continuing the discusion.

-mekong

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This may be considered off topic, but it is worth noting that Crowdstrike IPO lock expiration is 12/9. This may present a buying opportunity into the end of the year.

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thanks mekong…

I was just trying to balance off your argument…
and TTD and CRWD are so very different type of businesses, that one can only do so much to compare…

FWIW, I am long CRWD and have no exposure to TTD because the way I calculate, in next 3 years, I see upward of 150% upside for CRWD from here where as for TTD its barely touching 50%… both with reasonably optimistic scenarios…

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