The case for CRWD?

Investment Analysis Clubs Saul’s Investing Discussions
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Results from both NET and DDOG have me looking at CRWD again. They have been thrown to the scrap heap by many of us this past year because of deceleration of revenue. But when you look at the pace of it, its peanuts compared to what has just happened to DDOG.

They have basically gone from 83% at the start of 2022 to say roughly 30% for 2023 (based on their guide). Absolute freefall, yet we have kept backing them.

CRWD on the other hand is going from 70%, and has stabilized in the 50’s in the past few quarters, assuming they hit their guide for Q4. Now obviously we don’t have their 2023 guide yet, but their stability has me wondering whether they will pull a Cloudflare, and deliver a guide for 2023 that actually allows them to hit 40%+, a rare breed of SaaS companies in this day and age, and has the potentials to see the market reward them this year, considering their much lower multiple.

I know there are a lot more factors at play here, CRWD are in a competitive space, but I think its worth pondering. Does anyone share any views on the future for CRWD this year and beyond?

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From CRWD’s latest ER transcript:

As George mentioned, even though we entered Q3 with a record pipeline, we are expecting the elongated sales cycles due to macro concerns to continue, and we are not expecting to see the typical Q4 budget flush given the increased scrutiny on budgets. While we do not provide net new ARR guidance given the current macro uncertainty, we believe it is prudent to assume that Q4 net new ARR will be below Q3 by up to 10%.

Looking into FY 2024, assuming an approximately 10% year-over-year headwind in the first half of the year on net new ARR, and for the full year, net new ARR would be roughly flat, to modestly up year-over-year. This would imply a low 30s ending ARR growth rate and a subscription revenue growth rate in the low to mid-30s for FY 2024.

So next new ARR is expected to be down 10% sequentially in Q4 and flat in FY24. We aren’t going to see a 40% guide for CRWD’s FY24 (or anything near it). Will be lucky to get a 30% guide.

Bnh

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Yeah its definitely slowing but a guide in the 30% range, with a beat, is still quite impressive vs the multiple and growth DDOG is offering…

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I side with the short-term pessimistic view for strictly B2B companies. I listened to a bunch of earnings calls over the last 2 weeks, mostly Q3 and then Q4s, often back-to-back.

Interest rates rise–valuation cut; B2B spending cuts–performance draw-down–valuation cut. Viscous cycle, reverse of 2020. Businesses cut, consumers spend, it is a mess.

In LTBH terms, all these companies should be fine and then some. But at the moment, it just seems to me like choosing between leaky boats.

The only notable exception I heard was AYX and Q4 was exactly what the Q3 call suggested. The nominally dismal guide anticipates a significantly worsened macro in the second half of the year leaving much room for beats. Besides, market cap is small, expectations are low, and no social media hype for all I know.

Being dependent on ETFs in my 401k, I have DDOG, SNOW, CRWD, ZS, S, TWLO, IOT and 15 or so others as LTBH holdings anyway so for me it is a different situation.

In my direct holdings, however, earlier this month I replaced NET with TTD and S with FOUR and now DDOG is much smaller, ZS I cut in half and instead I have INSP and KNSL which I am building. Also looking at TMDX, SWAV, ENPH though the latter also faces some headwinds IMO.

Besides, the market caps of AYX+FOUR+INSP+KNSL = less than CRWD’s.

I am neither an expert, nor experienced, as you know. Just looking for a more diversified set of companies that I think can do 30% and/or significantly outperform expectations and that are a bit outside the beaten path. I have remained fully invested all along, just visiting new fishing ponds though staring at KNSL’s ER with all that insurance info is awkward :slight_smile:

Cheers

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Specifically to address your point, I think the main argument for why DDOG might be favored over CRWD would be that the perception is DDOG slowdown and guidance is attributed almost entirely to macro conditions - so the long term thesis remains intact - whereas CRWD seems to face that headwind as well as losses to emerging competition and perhaps some execution issues.

Having said that, I still own a significant tranche of CRWD beside similar positions in S and ZS. I feel more comfortable wagering on the triad long term vs. guessing and hitching my horse to any one of them, or trading in and out of them every earnings season. My particular investment preference is less in-and-out, more long-term, so I have a higher burden to sell and change tact than others, I suppose.

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A happy CRWD holder after those results. One could expect a rerating of their multiple vs SNOW/NET.

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