As the Work From Anywhere trend gains momentum, there’s a greater need for endpoint security. CrowdStrike (CRWD) is an expert in this space, providing workload protection across various endpoints—including cloud, containers, mobile devices and IoT devices.
CrowdStrike’s top-line and customer base have been expanding rapidly. The company is on track to reach $1 billion in annual revenue in the next two years.
Today, shares of CrowdStrike, up 116% YTD, reached a new all-time high of $108.33. The stock is up sharply since the June 2019 IPO at $34, with an opening trade of $63.50.
When people talk about endpoint protection, they’re often referring to the old concept of securing desktops and servers. But there are now many more endpoints. CrowdStrike likes to say it provides workload protection. The company will be a major beneficiary of the ongoing shift of workloads to the cloud. CrowdStrike currently has 11 cloud-based modules that cover everything from prevention and detection to vulnerability management and managed threat hunting.
The company has done an excellent job when it comes to new customer acquisition. CrowdStrike finished FQ1 (ended April) with 6,261 total customers, up 105% year over year. In the latest quarter, the company added 830 net new subscription customers, second only to the previous quarter’s record of 870 net adds.
As part of the sales process, CrowdStrike highlights the value of its platform, emphasizing the cost savings of consolidating a bunch of old security systems. CrowdStrike sells its modules in bundles.
The basic Falcon Pro bundle replaces legacy antivirus (AV) software from the likes of Symantec and McAfee with next-generation AV protection that’s integrated with threat intelligence. The Enterprise bundle adds endpoint detection and response (EDR) capabilities. In the Premium bundle, Discover is an IT operations offering that provides expanded visibility.
About 55% of CrowdStrike customers have purchased four or more modules, while over 35% have five or more. Cross-selling is an important growth driver. Most customers have the prevention, detection and threat hunting modules. Discover has quickly become a popular module (it now has a take rate of 45% across the customer base) because it offers real-time response capabilities and enables users to remotely run a wide variety of commands on any endpoint or workload.
Among the modules gaining traction, Falcon Spotlight for security operations, launched in the final quarter of FY’19, integrates real-time endpoint vulnerability data with prioritization and response workflows provided by ServiceNow. The Falcon for Mobile module is a mobile EDR product that identifies vulnerable devices and detects malicious activity on business-critical mobile apps. Falcon Complete is a fully managed endpoint protection service.
One key positive trend: CrowdStrike is now landing bigger with more modules, increasing the number of customers that are starting out with annual recurring revenue (ARR) above $1 million. That’s a significant development because it means the platform concept is resonating with enterprise accounts. Another big positive is the success of the Amazon partnership. In FQ1, CrowdStrike saw a 75% sequential increase in ending ARR from business transacted via AWS.
Despite the Covid-19 crisis, CrowdStrike delivered an admirable FQ1 report, with total revenue rising 85% to $178.1 million, beating the consensus estimate by 7.6%. Subscription revenue advanced 89%. Driven by both new logos and expansion business, total ARR ended at $686.1 million, up 88% (only a slight deceleration from FQ4 growth of 92%). CrowdStrike in FQ1 added $85.7 million in net new ARR. Gross margin of 75% was up from 70% a year ago.
Following the FQ1 report, Wall Street analysts across the board boosted their CrowdStrike price targets, with the bulk clustering in the $110 to $120 range. JP Morgan is among the most bullish, upping its target to $120, citing strong execution in a tough environment and growth potential for the AWS partnership. Needham also raised its target to $120, pointing out the frictionless go-to-market sales motion and the highly scalable installation capabilities.
For FY’21 (ending January), CrowdStrike’s latest revenue guidance range of $761.2 million to $772.6 million (up 5% at the midpoint from the previous outlook) represents growth of 58% to 60%.
At recent prices, CrowdStrike shares remain expensive, sporting an enterprise value that’s 28.8 times the FY’21 consensus revenue estimate of $770.5 million. Using the FY’22 consensus of $1.02 billion (growth of 31.9%), the forward multiple dips to 21.8.