Don't Look Now - Crowdstrike

Crowdstrike announced a fantastic quarter:
https://ir.crowdstrike.com/news-releases/news-release-detail…

Awaiting the earnings call, but what I’ve quickly noted:

#1 Revenue is no longer decelerating. Stable growth now in the 12-14% sequential growth range for the past 5 quarters.

#2 They have guided hiring than most of our companies (7% sequential and 48% fiscal year). This is higher than NET, ZS, DDOG, UPST, MNDY, ZI, etc.

Welcome back Crowdstrike.

Daws (Long CRWD 2% - and growing)

94 Likes

Welcome back Crowdstrike

Did they ever leave Daws? :wink:

As much as I’d like so say this was some wild beat to expectations, I think this is largely a “meets” quarter against what they were projecting. I talked about expectations in my CRWD vs. NET post here - https://discussion.fool.com/my-case-for-crwd-over-net-35048951.a…, and it was pretty much in-line on revenue growth and next quarter guide from a % beat perspective.

I just think that sentiment was overly negative around their decelerating revenue growth and that was clouding judgement on the bigger picture of where this company is heading.

I’ll try to put more comprehensive thoughts and review on this CRWD report in the next day or so, but overall from what I’ve gathered thus far, I’m satisfied with this earning report and will be listening to the call momentarily.

-Chris

13 Likes

Yes I like what I see…will listen to the call.

*Achieves record net new ARR of $217 million with growth accelerating for the second consecutive quarter

*Ending ARR grows 65% year-over-year to exceed $1.7 billion

*Delivers record operating and free cash flow for the second consecutive quarter, bringing operating and free cash flow for the fiscal year to a record $575 million and $442 million, respectively

and

* Added 1,638 net new subscription customers in the quarter for a total of 16,325 subscription customers as of January 31, 2022, representing 65% growth year-over-year.

In this post I had pointed what I liked about CrowdStrike and why I had a 5% position.

https://discussion.fool.com/hi-jon-thanks-for-your-post-i-felt-i…

I’m glad that both MongoDB and CrowdStrike has done well. :smiley:

Happy Investing!

Cheers!
ronjonb ( https://twitter.com/ronjonbSaaS)

9 Likes

There’s something here for everyone - those who held $CRWD the past quarter, and those who sold out. Here’s a few reminders —

  1. By not selling based on one quarter of possible decelerating revenue, many have kept their tax basis and thus either haven’t (yet) triggered a large tax bill (assuming they’ve owned Pre COViD) or have a long term cap gain basis intact for (hopefully) years of price appreciation.

  2. If you did sell out, remember - you only have to be right about the ones you still own. As near as I can tell, given the info people had over the past quarter,(not withstanding tax concerns which might just not be relevant for some) many folks here thought long and hard and decided to sell after due consideration of the decelerating revenue and other factors. As someone who held, I appreciated hearing everyone’s perspective. Anyone long CRWD taking a victory lap at the expense of those who sold is missing the point of this board, and the valuable discussion that allows folks to make their own, independent decisions. If it appears that today some have sold prematurely, who cares? I certainly won’t rub your nose in it… it’s the process thar counts. Besides: See #3:

  3. You can always buy back in if a company rebounds based on a prior, underwhelming (by our lofty standards).

Looking forward to discussion about the call. Let’s be objective, ruthless, and transparent - it’s not about interpreting the call to justify whatever decision one made to sell out or hold after last quarter.

24 Likes

After reading an earlier post by TMFCheesehead about Datadog (DDOG), I noticed that the Crowdstrike (CRWD) Q4 report emphasized the number of customers using multiple modules:

Here is the relevant part of the DDOG post:

The key number from Datadog’s earnings that I want to highlight: customers using multiple products. This – more than anything – is the most important to me. It marries together two things:

Optionality: This is like the offense. The ability to find new ways to fulfill one’s mission. In this sense, with new products.

Moat: This is the defense. Via both high switching-costs and network effects, using more products means that switching away becomes more painful.

https://discussion.fool.com/ddog-numbers-35069281.aspx

Now for CRWD:

In addition to the growth in new subscription customers, CrowdStrike noted in their Recent Highlights section that those customers are adopting more modules.

Just two years ago, CrowdStrike’s subscription customers that have adopted five or more cloud modules increased to 33% as of January 31, 2020

https://ir.crowdstrike.com/node/7306/pdf

Last year, CrowdStrike’s subscription customers that have adopted four or more modules, five or more modules and six or more modules increased to 63%, 47%, and 24%, respectively, as of January 31, 2021.

https://ir.crowdstrike.com/static-files/b1731403-3e5d-45b7-9…

This year, CrowdStrike’s subscription customers that have adopted four or more modules, five or more modules and six or more modules increased to 69%, 57%, and 34%, respectively, as of January 31, 2022.

https://ir.crowdstrike.com/news-releases/news-release-detail…

Just two years ago, only 1/3 of their customers adopted five or more modules; now well over half do. This suggests strong customer satisfaction and should make CrowdStrike more sticky with customers.

I would encourage anyone following CRWD to read the earlier posts by ronjonb and Chris which they link in the previous posts in this thread. Back in January, I wanted to increase my Zscaler (ZS) and SentinelOne (S) positions and debated whether to sell a significant percentage of CRWD to do so. In part b/c of their posts, I only trimmed CRWD from ~8% to ~6% and sold out of Amplitude (AMPL) and sold some shares of companies not discussed on this board so I could boost my positions in ZS and S.

All the best,
Raymond

6 Likes

Crowdstrike announced a fantastic quarter

Hi Daws, I’m afraid you got a little bit carried away there.

Their revenue growth rate had been bleeding away at a very alarming rate of 5% to 6% sequentially on average for the last four quarters, and many were afraid they would be down to 57% growth or so this quarter, so yes, they stopped the bleeding away of their growth rate this quarter. That’s a positive development for sure, but it certainly doesn’t make it a “fantastic” quarter! We’ve seen some fantastic quarters and know what they look like. Maybe I’d call this a “satisfactory” one, and “better than expected”.

I’m glad they came in better than expected as plenty of board members are still in it.

Best,

Saul

52 Likes

Hi Saul,

Perhaps Daws was a little over-exuberant - at least until we can all thoughtfully digest the call and guidance - but I don’t think the fire should be pee’d on either! :joy:

I KNOW, that YOU KNOW there are other things besides revenue to focus on (and there’s certainly no excuse needed for these revenue numbers) — ‘cause you wrote the knowledge base!

One of the best defenses for those who impugn us as “momentum investors” is to describe how we’re looking at other (besides revenue) important factors in growth companies. At first blush, there are several things to like in todays ER: ARR, net new customer adds, the rate at which existing customers are buying more products, the free cash flow increases (Saul, I know you love your margins and free cash flow)… and even if one is to be a “revenue purist”… well, first I’d point out that it’s not like revenue tanked like FB-Meta and second, I’d posit it depends if you’re a glass-half-full or -empty kind of person: Where one might have been discouraged solely based on the decelerating revenue, another might have viewed these recent 4-6 quarters as attaining a stability of sorts, as a company with a now-forecast $2B run rate is still consistently growing well north of 60%.

This, too, is without even talking about the sheer quality of this company’s products, which deploy in an industry with a long runway with tailwinds that this month’a global politics have highlighted, with a company-specific moat that renders its products perhaps unique in their style of group-coverage protection, all while leveraging AI, the technology of the future.

Wow.

Anyway, I need to look closer at the guidance going forward and try and decide what a 48% guide might really translate into. But if one just came across this company - if it wasn’t a past darling of SID that’s fallen out of favor — wouldn’t we at least be debating CRWD merit of inclusion in a concentrated portfolio?

I think the truth here is somewhere in the middle between Daws excitement and perhaps the dismissing reflex of our board who assumed $CRWD was dead to us going forward.

Let’s look at it without bias either way in the coming days. I know I am because I’m considering building up my CRWD position again, and I’m also thinking of how to deal when companies like SNOW invariably start to have a deceleration as they scale. While the Algos might dump SNOW at 4:02pm someday when revenue decelerates, I want to be more thoughtful about it.

$CRWD might just be the canary in the coal mine for the boards perspective on the future of companies like SNOW and DDOG in terms of how we think about them as quarterly growth stabilizes.

71 Likes

#2 They have guided higher than most of our companies (7% sequential and 48% fiscal year). This is higher than NET, ZS, DDOG, UPST, MNDY, ZI, etc.

I think this is a really important point that I wanted to dig deeper into.

CRWD: $44B Market Cap
TTM Rev: $1,452 billion; 66% YoY growth
NTM Forecasted Rev: $2,148 billion; 48% YoY growth

DDOG: $44B Market Cap
TTM Rev: $1,029 billion; 70% YoY growth
NTM Forecasted Rev: $1,520 billion; 48% YoY growth

MNDY: $6B Market Cap
TTM Rev: $308 million; 91% YoY growth
NTM Forecasted Rev: $473 million; 53% YoY growth

NET: $31B Market Cap
TTM Rev: $656 million; 52% YoY growth
NTM Forecasted Rev: $929 million; 42% YoY growth

SNOW: $72B Market Cap
TTM Rev: $1,219 billion; 106% YoY growth
NTM Forecasted Rev: $1,890 billion; 66% YoY growth

TTD: $31B Market Cap
TTM Rev: $1,197 billion; 43% YoY growth
NTM Forecasted Rev: N/A

UPST: $10B Market Cap
TTM Rev: $849 million; 264% YoY growth
NTM Forecasted Rev: $1,400 billion; 65% YoY growth

ZI: $21B Market Cap
TTM Rev: $747 million; 57% YoY growth
NTM Forecasted Rev: $1,015 billion; 36% YoY growth

While Crowdstrike’s guidance for YoY growth wasn’t higher than all of our other companies, the total revenue number is by far the largest out of any of the ten SaaS companies I own. I think this is an important point that is being forgotten by the market. Obviously, guidance cannot be taken as gospel but I feel pretty certain Crowdstrike is going to produce roughly $2.3 billion in revenue growing north of 55%+ in 2022. Additionally, I suspect adjusted operating margins will be roughly 20% next year as well. How many of our other companies will still be growing 50%+ at a $2b+ run rate with ~20% op margins? DDOG will get there and likely SNOW as well, but I think what Crowdstrike is accomplishing at this scale is very impressive. I see a very clear path for CRWD shares to return to a ~$60B market cap (up roughly 40% from today’s price) based off their growth and earnings. I will continue to hold onto my CRWD shares as I see them as becoming a stable juggernaut in the cybersecurity space.

Rex
Long CRWD

91 Likes

I see a very clear path for CRWD shares to return to a ~$60B market cap (up roughly 40% from today’s price) based off their growth and earnings

Curious how you’re coming up with this?

1 Like

I see a very clear path for CRWD shares to return to a ~$60B market cap (up roughly 40% from today’s price) based off their growth and earnings

Curious how you’re coming up with this?

Crowdstrike has only traded below an TTM EV/S of ~30 twice - back in December 2019 when most other SaaS names sold off, and a second time in March 2020 when the entire market tanked. Aside from the March 2020 low, CRWD has never sold at an TTM EV/S multiple of less than 20. Even with the stock price 35% off ATH’s like it is now, CRWD is still trading at a 30x multiple.

Given their consistency, scale, industry tailwinds, leadership position, management team, and increasing profitability, I have a hard time seeing the multiple collapsing much further from here. (If it is, I will be scooping up shares). All this to say, I believe that if Crowdstrike continues to execute as they have been, I think it is safe to assume they will be valued at least somewhere in the ballpark of an TTM EV/S of ~25. Again, this would be near the all time low CRWD has ever traded at (excluding March 2020), and below today’s current valuation.

As for the 2023 fiscal year revenue estimate, I think $2.3 billion is a pretty good bet. This would only require them to bet their FY guidance by 7%. This year, they came in 10% above their initial FY guidance given in their Q4 2021. The year before that, they beat their initial guidance by 20%. Additionally, $2.3 billion would mean they were growing about 12% sequentially each quarter which would be a bit lower than the ~13% average growth seen this year.

So, back of the napkin math tells me if they can produce ~$2.3B in revenue this year and their multiple drops ~15% (down from 30ish to 25) due to slowing growth, Crowdstrike would end up with about a $58B market cap. Of course, this includes a handful of assumptions and nothing is guaranteed but Crowdstrike seems like it is more than capable of producing a 30-40% return this year. While this would still leave shares short of their ATH of $298, I wouldn’t be too disappointed with that return. Essentially, I’m just looking for the multiple to stay in the same ballpark as it is today and their revenue growth will do the rest, as Saul has preached for years.

23 Likes

MajorFool20,

I see ur reasoning but I’d like to draw ur attention to the fact that our companies are MAINLY valued on FORWARD multiples and LESS on trailing multiples u r using. U can have TTM multiple of 25 or 30 but if the future growth will be going down perhaps “stronger” than anticipated ur TTM multiples will be pretty much meaningless. The market is always forward looking and (perceived) NTM multiples will dominate valuations - based on how the market works IMHO.

For CRWD in my opinion it’s important to “figure out” if current rate of growth in 60s became “new normal” for the company and there is some durability for growth rate at this level for next several quarters or even more than that. Or it’s a temporary stop before going down soon. Or perhaps it will reaccelerate, hence multiples would increase.

I don’t have a position in the company as of today because I’m still not sure if this growth in 60s is durable or we are going soon to 50s. We have a big company with above 2b of sales in next 12 months and this is not a consumption based model and law of large numbers should be considered here.

Best,
V

4 Likes

Hi Majorfool,
It’s always good to see a baseline comparison between companies. Because I am interested (and because I am Tickerguide!)

I thought I would add Pablo Alto Networks to the list. The Goliath in the cyber security industry.

Total 12 month sales are over $6B and growing 30% and a market cap of $54B

But to make the comparisons fairer, let’s only look at the cloud based portion, what they call Next-Gen. Because they don’t report out revenues separately, they do report the ARR for it. I understand this is not exact for comparison but it gives a good approximation.

Last qtr ARR was reported as $1.4B, roughly in line with CRWD and growing at 70%.

Forecast for year end ‘22 is over $1.7B and a yr/yr growth of 46-50%.

These numbers all compare reasonably well with the companies listed. Only difference is you get a slower (nicely) growing $5B in revenue hardware company that is making lots of money and FCF almost for free.

Anyway, just keeping PANW on the radar here. Again, good summary.

Randy
PANW Tickerguide and long CRWD, NET, DDOG, ZS, PANW, and others. (I like the cyber security investment space!).

6 Likes