Recently, my second-level thinking has drifted to CrowdStrike, a stock I have owned for several years. The generally held bull thesis, at least as I understand it, is a best-in-class cybersecurity product. Personally, my contrarian concerns center around that not being enough to sustain long term growth over a period of, say, ten years. As many of us here hold the company, my trepidatious mind wouldn’t ignore some rebuttal over the following generally held bull cases:
#1 – CrowdStrike offers a best-in-class product, they differ from the competition.
Well, what qualifies as best-in-class? Directly from their website:
• “Using world-class AI, the CrowdStrike Security Cloud creates actionable data, identifies shifts in adversarial tactics, and maps tradecraft in the patented Threat Graph to automatically prevent threats in real time.”
• “Purpose-built in the cloud with a single lightweight-agent architecture, CrowdStrike delivers hyper-accurate detections, automated protection and remediation, elite threat hunting and prioritized observability of vulnerabilities.”
• “The CrowdStrike Security Cloud correlates trillions of security events per day with indicators of attack, the industry’s leading threat intelligence and enterprise telemetry from across customer endpoints, workloads, identities, DevOps, IT assets and configurations.”
• “Sophisticated attacks require a mix of automation and human expertise in the form of elite threat hunting. CrowdStrike proactively searches for threats on our customers’ behalf. An elite team of threat hunters works 24/7 as an additional layer of protection to catch what other solutions miss.”
To me, those read more like an attention-grabbing press campaign and less like being able tie upcoming innovation directly to revenue/profits.
#2 – To quote their own press release, “CrowdStrike is trusted by over half the Fortune 500, and over two-thirds the Fortune 100.”
If you already service over half the Fortune 500, where is the meaningful growth going to come from? Many folks will point to the number of products/services they offer, with even “60% of active customers using 5 services”, but now the thesis for CrowdStrike seems directly tied to the sales team, not the products team.
#3 – Profitability is just around the corner.
Yes, according to a recent earnings call transcript, they “achieved GAAP profitability for the first time in the company’s history.” The CFO then goes on to note, “We are very proud, but have yet to reach sustaining profitability going forward. We believe reaching this milestone demonstrates that our financial model will deliver GAAP profitability in due time…but we have other things we’re going after right now.”
What are they going after? Grabbing customers and more sales, right? Well, again, that brings us back to point #2 above. It’s a sales business, not a product business.
Please note, my intention is not to trash CRWD owners. After all, I am one. We have a smart group here, and I’m curious if direct revenue/profit drivers exist beyond what I’ve shared above?
Brandon
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