CRWD Runway and Conviction

Hi Guys,

Seeking some clarity on the conviction behind CRWD to hopefully bolster my own.

I bought into CRWD about 2 mths ago after researching and reading the opinions on the board.

However, as the price took a dip over these few weeks, some of my initial risk assessment on the stock begin to resurface. Hope to get some guidance from the board on these:

  1. Runway
    According to an IDC 2019 report end point security report, CRWD grew 98.9% in 2018-2019 and moved up from ninth place to fourth! This was a big reason for me to begin investing in it as its a great testament t how good their falcon product was in relation to an industry that grew 8.8% (corporate grew 13.6%)in the same period.

However, do any of you worry about the overall market size? CRWD is growing so much but the industry isn’t. I reckon this means their growth comes from eating up market share of their competitors that mainly had single digit growth during that period. But wouldn’t the overall industry size limit CRWD’s growth pretty soon?

For example, in the same report, Symantec (market leader in 2019) had a market share of 12.4% with a rev of $925.2mil for this segment of endpoint security. CRWD in comparison at 4th place had a market share of 5.8% and a rev of $436.3mil.

According to Q3 guidance, CRWD will have a TTM revenue of about $744mil (crazy growth!). I’m really impressed by their numbers but how much more runway will they have to grow at close to 100% Y-o-Y revenue growth?

Will the market expand much more since Covid has cause endpoint security demand to surge?

  1. Great but Declining Growth
    In Q2 2019, Y-o-Y Rev growth was 94% and ARR growth was 104% but in Q2 2020, Y-o-Y Rev growth was 84% and ARR growth was 87%.

I’m guessing this is due to the law of large numbers?

What are your thoughts on this revenue trends for CRWD?

Thanks in advance!

8 Likes

I’m really impressed by their numbers but how much more runway will they have to grow at close to 100% Y-o-Y revenue growth?

In the company presentation, they discuss TAM. The company claims TAM in 2022 will be $31.9 B

https://ir.crowdstrike.com/events-and-presentations

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A recently posted article mentions CRWD’s push into the workload security market, potentially expanding their current TAM by 2-4 Billion, according to the writer. The market does seem to be pretty competitive though.

https://seekingalpha.com/article/4382094-crowdstrike-sizing-…

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Thanks for weighing in guys.

That’s a good write up of CRWD on SA.

I agree with the author’s points on them bloating up the new TAM and the huge competition in the space.

That said, I think they will do just fine for at least a year or two more.

However long term wise, the cybersecurity space is a very tough one.

PANW used to be the star and now, they are becoming a struggling legacy player.

Will be watching CRWD closely and won’t hesitate to move out of it if their story changes.

3 growth engines…

  1. CRWD can conceivably grow much larger than Symantec’s market share… with cloud native architecture, end point security market does not have to so highly fragmented that lop market share company holds only 12%… as CRWD grows, it can grow market share into 20% / 30% / heck even 50% range…
    why not?

  2. They are already selling multiple modules and their success for more than 3 modules and 4 modules is growing… that includes some of the infrastructure security play as well (not just end point)

  3. workload security as mentioned above… though this is the one that needs to be proven out…

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There has been a lot of talk on the board previously about “network effect” in regard to CRWD. My non-techie understanding is that CRWD is the first company to do security built on the foundation of the cloud. All of the devices they defend are interconnected and they can put protection in place for all devices on their network nearly instantly when a new threat is detected. By being the first company to build up this network, they have a huge advantage over any competitors who want to try to copy their model.

The question in my mind is - is that network thesis valid? I personally think that will determine the long-term defensibility of their business. If the “network effect” is real, it’s going to make it very hard for anyone else to unseat them.

If other companies are able to replicate the network, then it becomes a little harder for CRWD to defend their business.

Long CRWD 12%

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CRWD has also added a module for monitoring AWS and Azure environments. The simple story is that Crowdstrike is an endpoint security company. The more accurate story is Crowdstrike is becoming a full systems security company. The actual TAM starts to shift as the story changes. What makes it valuable is how it collects, analyzes, and acts on data.

Security isn’t easy - Crowdstrike handles the complexity.

Long CRWD - 14% of portfolio.