What the heck happened with CRWD?

I’ve spent some more time with CRWD’s earnings report from a couple weeks ago, and I’m not liking what I see.

An important part of why our stock picking works is because the best companies typically exceed expectations more than not. In the big 2020 - 2021 run up, expectations went higher and higher, and share prices with them. That’s obviously been reversed in 2022, and not ONLY because of macro. 2021 valuations implied that many people (including us to some extent) believed many of our companies would grow at 50%+ forever. “Or if it’s 48%, no biggie.” But that expectation has changed quickly for Crowdstrike. They said that net new ARR would be down about 10% next quarter and then about flat next year. If you take that to mean they’ll add about 800m in net new ARR next year (flat with where they’ll end up this year – they’re at 610m and promised 180m in Q4), that means roughly 32% growth next year (calendar 2023). Sure, we and everybody expect they’ll beat that, but it won’t be 40%+. And sub-40% growth next year is a lowering of my (and probably everybody’s) expectation. I’m guessing that’s why the stock got hammered.

The big question is, what will happen in 2024 and beyond? That depends. Is Crowdstrike seeing this slow down because of temporary external conditions they foresee in calendar 2023? Or because of competition? Or perhaps because the endpoint security market is more saturated than we thought? We need to think about these kinds of questions before growth slows with any company. Unfortunately, with endpoint I have always worried that disruption is a bigger risk (thankfully – hopefully – not shared as much by SNOW or DDOG or BILL). So maybe that is happening, or maybe not…“could just be macro.” But maybe at this point it’s all academic, because…

Do we even really need to know why growth is slowing? It’s happening whether we know why or not. We’ve seen this movie before – at this scale Crowdstrike is not likely to reaccelerate to 50% growth in 2024…or ever. Will Zoom do that? Docusign? Of course not. At some point growth slows and doesn’t come back…realistically we weren’t ever going to stick with Crowdstrike for the next several years, anyway. I feel a bit like Icarus here. I thought I could make some money (thanks to Crowdstrike’s strong cash flows) for another year or two while growth slowed gradually from 60% to 55% to 50% to 45% etc. Turns out that isn’t the case. Life comes at you fast.

At the current price, I’m inclined to wait for an up day to sell out of CRWD, but I’ve already trimmed it from 12.8% to 8.0%.

If anyone has insights into my above questions about endpoint, I think they’re also pertinent to SentinelOne.

It’s also probably a good idea to go through the “what if” scenarios for growth slowdowns (ie, do we believe they’re temporary or not?) for our other companies…especially ones approaching the scale Crowdstrike is at, like DDOG and SNOW…maybe even NET. (Spoiler, I do not think any of these are close to saturation or slowing to 30-something percent growth…I think their opportunities are larger than CRWD’s…but I’d love to hear other opinions).



Hi Bear,

I’m guessing you have some framwork your using to evaluate slowing growth within a market, onto which you’re asking for input to be added here. I hope this post does not take away anyone else’s input. I’m just adding a few remarks here, items I try to get my head around prior to crunching any numbers.

Slowdown in Security?

Will the layoffs, many in the tech workforce, continue after this economic slowdown? How many in the general workforce, not just tech companies, will hire again, as we all move toward further automation?

I agree these questions are important given what Muji said well here-

“User-focused security tools (like in next-gen security areas of EDR/XDR, IAM, and SSE) are typically seat-based and cover the entire workforce. These platforms all saw a tailwind in boom times of rampant hiring. However, we are now seeing heavy layoffs in tech, retail, and beyond. While these platforms remain sticky (those stable gross and net retention rates), this creates a headwind when impacted customers (with a now smaller headcount) rightsize their commitments when contracts are renewed.”

Does it matter in the long run?

With automation comes increases in demand from automated workloads. As pointed out by Muji here-

“I will note, however, that these companies are all moving into the adjacent market of protecting cloud workloads and data (with capabilities such as CNAPP, IoT/OT, and Data Protection). This is shifting them beyond per-user (headcount) into new greenfield areas of growth driven by the overall trends of cloud migration and app modernization.”

What are the timelines and therefore how will we manage this transition?


Zs has said that workloads bring in more revenue than worker seats. It looks like billing is per workload in there example; but, I question how each company might change billing going forward. When billing workloads verses seats, are we sure this is not going to be a move from SaaS to a consumption model (eg Datadog)?


“For users, they can sell ZIA (plus various add-ons), ZPA and ZDX. All in, these would bring the total spend to $145 per user per year. For workload protection, they offer CSPM, segmentation and communications between workloads. The full bundle of these services costs $155 per workload per year.”

Due to the only timescale I can see clearly:

I’ve moved from owning Crowdstrike to Sentinel recently because of S’s apparent ability to move up market appears to be better than Crowdstrikes, when there are Macro Tailwinds for this.

At this time there aren’t any CNAPP ratings by any third parties including SentinelOne, yet. So I’m watching this closely.




I’m with you @PaulWBryant . This latest result from CRWD has required some reevaluation on my part. It’s not that their revenue beat in Q3 was the smallest in the Company’s history as public company. Or that there’s a tough macro environment. I could deal with either or both of those. Cybersecurity was forecasted to have tremendous tailwinds and be the most resilient market in software. The reason is for reevaluation is exactly what Bear pointed out. It appears that growth in slowing (and growth had already been slowing for a while) and I too have doubts that growth will return to >50% (except for maybe if easier comps are produced during calendar 2023). We know that revenue growth drives growth in cashflow and earnings so if growth is permanently going to be sub-40% then that’s not as good as other investments.

Since early 2022, cashflow has become an important investment criterion right up there with revenue growth. And what drives cashflow? It’s revenue growth and the realization of operating leverage. Well, CRWD has done a great job of creating operating leverage over the past several years. In fact, the job done has been so good that CRWD has almost reached it’s long-term operating model target. Great for cashflow generation but not good for further operating leverage left to be realized. CRWD’s target model for FCF is 30%+, and during the past five Qs (most recent listed first), CRWD delivered 30%, 25%, 32%, 30%, and 32% FCF margin. So CRWD is there so their cashflow in the future can grow with revenue. Yes, we want all of our companies to get where CRWD has gone in terms of reaching their operating model targets, but it’s also nice to have room to improve the operating margin along with higher revenue growth to keep sustaining further growth in cashflow.

So why has CRWD fallen in tough times? @WillO2028 mentioned the downmarket move to SMBs. That segment of customers is being particularly cautious. But I also wonder whether a move downmarket is worse than a move upmarket in this case (I mean aside from SMBs falling on tough times). I also wonder if the security market is more crowded than some other markets like those in which SNOW and DDOG play (seems to me that SNOW and DDOG retain their top dog positions with fewer viable competitors). Perhaps COVID gave CRWD a big growth bump due to massive hiring in tech (most endpoints to secure); slowing hiring growth or worse (layoffs) will create a tailwind for growth now and in the coming year.

CRWD was my second largest holding. I’ve cut my allocation back by half and I’m still deciding what to do with my remaining position. Will CRWD as a ~30% revenue grower produce enough cashflow growth to make a good investment?

I still won’t invest in S because I can’t have confidence in S’s ability to ever become cashflow positive.