Why I wrote about CRWD if I’m not in it?
People have asked why I wrote a negative post about Crowdstrike if I’m not in it and wasn’t thinking of entering it. Well I often write about companies that I’ve exited, sometimes warning others about them. Zoom is a recent prominent example that I can think of off the cuff. But that wasn’t the story with Crowdstrike. I wasn’t warning against them so much as I felt disappointed in management. Here was the deal:
I hadn’t removed myself from Crowd’s mailing list, because they were a company that I was still interested in, as an old friend that I might get back in again in spite of their plummeting growth rate (I still might). Well about two weeks ago I started getting a series of alerts from them about their upcoming investors’ conference coming up Thursday, April 7th, after the market. Then right after the market closed on Thursday, they announced the approval by the Defense Dept.
I wasn’t able to immediately watch the investor’s video but I looked at their Investor Presentation slides. I saw their $5 million goal and their last 5-yr CAGR of 94% for revenue growth, 97% of ARR, and 105% of subscription revenue growth, 105% of total customers. Very impressive.
Then I saw their goals of $3 billion ARR in FY2024 and $5 billion in FY2026 and was impressed by them, and I liked their free cash flow, operating margins, gross margins, etc, and I liked their Defense Dept approval. I could see accepting them as no longer a hypergrowth company, but a fairly rapidly growing profitable one.
I watched their video and saw more of the same. I started thinking seriously about taking back a small position. But then I started thinking about the numbers they were presenting…
Why were they tooting their horns so loudly about LAST 5-yr cagr of 94% for revenue growth, 97% for ARR, 105% for subscription revenue growth, and 105% of total customers, when none of those numbers were anywhere close to valid any more. For instance, nowhere in those graphs did they point out that FY2022 revenue growth and subscription revenue growth were 66% and 69%. What did 94% and 105% have to do with anything NOW??? It just didn’t seem like quite honest to present it that way.
And then I came to the Goals for ARR. I pulled out my calculator to see what they were actually predicting and (with correction from the board), I found out that they were forecasting four years at 30% growth! But they were touting the $5 billion goal on several slides in huge print like it was the greatest thing since sliced bread! What were they thinking? Were they so focussed on saying how great the company was that they didn’t look at what they were saying?
I would assume they will grow at least 54% this year, which is 24 points over that 30% average. But that means that the other three years would have to average, each year, 8 points less than 30% growth to make up for that. What kind of a crazy “wonderful” prediction is that.
Look at it another way: If they decelerate rapidly and grow only 50% this year, and 40% next year, and 30% the third year, and just 20% the fourth year, they’d STILL be well over $5 billion. Is that such a wonderful prediction?
So I’m not dissing the company’s business. I’m dissing management’s bragging in an investor presentation about 100% CAGRs that have nothing to do with the current company, and very under-emphasizing current results. I’m also dissing management bragging about a four year goal that is so low they can’t possibly miss it. Which is so low that it’s silly to brag about it.
This is a management that brags a lot. It’s just the CEO’s style. I don’t mind that because they have a lot to brag about.But this presentation just makes me a little more unsure about how much I can believe about the things management brags about, when they are not about current actual numbers.
I hope that this clarifies my thinking somewhat.