I had read up more on CRWD and decided to get in at beginning of the week, so got lucky with this ER pop. Still incredibly pricey, but my initial hesitance was more from a place of ignorance as I heard “endpoint security” and just zoned them out, as there is a ton of competition in the space.
But their ER/CC is an impressive read/listen. I wrote about it here:
CrowdStrike Holdings, Inc. (CRWD) CEO George Kurtz on Q1 2020 Results - Earnings Call Transcript https://seekingalpha.com/article/4275914?source=ansh $CRWD
I wont copy it here, but first main part does good job of summing up the genesis of company and why they believe their approach is unique and best.
This is key for me…describing themselves as more than just endpoint security:
“While we started in the endpoint security market, given the nature of our cloud-native architecture, we’re able to rapidly innovate on top of our platform and build new modules for additional functionality, and use case is not typically associated with endpoint security. Since 2016, we have launched seven new cloud modules and today we address five markets, corporate endpoint security, threat intelligence, security and vulnerability management, IT service management software and managed security services. Combining these market segments, we estimate that our global market opportunity is $24.6 billion in 2019, and growing to over $29 billion in 2021.”
“In looking at our future growth prospects, it is common for those new to the CrowdStrike story to only think about the opportunity as endpoints such as desktops and servers. However, we think about the opportunity differently and more broadly than that. We expanded our market opportunity by securing a wider array of workloads which includes desktops and servers, virtualized and cloud environments, IoT devices, and containers. In Q1, we expanded our market opportunity even further when we introduced Falcon for Mobile that supports Android and iOS. This is a powerful vector for growth. These workloads need to be protected and they are growing with every new connected device and every new cloud instance.”
Here they sound like they want to be a platform:
“We also intend to grow by broadening our reach into new international markets and customers segments including smaller organizations as well as acquiring customers in the federal government vertical. And lastly, we see significant longer term opportunity with new workloads and applications within the CrowdStrike store. The CrowdStrike Store offers the first and only unified security cloud ecosystem of trusted third-party applications. This sets the stage for us to further expand our TAM and grow in segments outside of security, such as IT operations and compliance.”
Of course a company will say nice things about themselves, but this is pretty impressive. I am a bit disappointed i was behind the ball here, but my early bias as this being just another endpoint security company is what cost me.
I have nothing but my gut to base this next statement on, but with a valuation like this, and possible lockup expirations down the road, their valuation multiple will shock those that haven’t really looked at their fundamentals, and I think they will be the type of company to pop after an ER and then trend down in a volatile manner until the next ER and then pop again. As far as modeling goes, I think they do around 90% growth this year putting them about $475m, which would be a 34 TTM P/S, or lower than ZS and OKTA today, if they held their current $16.3b mkt cap.
Then I think you have to assume growth slows and if we say 75% growth in year 2, they would be at about $830m, or about a 20 P/S at today’s mkt cap. Unless the market starts repricing all the hypergrowth stocks fairly dramatically, I think it is fair to expect they would have something more like a 25-30 P/S after a 75% y/y growth rate.
You kind of need the stock to be at around a 30 P/S in 2 years, if growth does slow to 75%. If growth slows further, I think this price is untenable. If growth actually stays higher, it is probably a huge return.
My napkin math says it is 23% CAGR over next 2 years, from this level. Nice, but not earth-shattering, so I am keeping a small allocation and hoping we see an opportunistic dip. Otherwise I think something like ESTC will still net you a better return the next 2 years.