Before Crowdstrike (NASDAQ:CRWD) companies spent enormous sums of money to house and maintain servers for their cybersecurity operations.
But then Crowdstrike’s Falcon platform came along, providing a cloud-based solution that doesn’t require a company to invest in expensive infrastructure.
The Falcon solution consists of a series of modules that allows customers to tailor their security package to their needs. This new model revolutionized the cybersecurity market and put CrowdStrike at the forefront of the industry.
The company’s success drove CRWD share price up by 132% since the company’s IPO in June 2019. And even with investor sentiment cooling in recent years, the stock is still up around 44% year-to-date. Currently trading at around $150 off a 52-week high of $205, it seems like CRWD has plenty of room to rise.
So is CrowdStrike stock a buy?
CrowdStrike: The Bird’s Eye View
The Falcon platform is compatible with Windows or Mac operating systems and can be installed on desktops or servers. Crowdstrike uses Endpoint Detection and Response (EDR) technology to identify potential threats and provide solutions before cyberattacks occur.
Falcon utilizes state-of-the-art AI machine learning to sense threats and neutralize them in a much more efficient way than previous antivirus software could.
The company’s security expertise is the reason why the US government asked CrowdStrike to investigate several major cyberattacks.
61% YoY Increase In Recurring Revenue
The first quarter of 2023 was so positive that CrowdStrike increased its revenue and profit estimates for the rest of the year.
Total revenue of $487.8 million represented a 61% increase year-over-year. The company added 1,620 net new subscribers in the first quarter, bringing the total number of subscribers to 17,945.
Annual Recurring Revenue (ARR) grew 61% year-over-year to $1.92 billion. Over $190 million of that total was added during the first quarter.
In addition to overall subscriber growth, 71% of customers subscribed to more than one module of the platform.
The company is still operating at a GAAP net loss, but the first quarter loss of $23.9 million was a decrease year-over-year from 2022’s net loss of $31.3 million. But Free Cash Flow increased from $117.3 million in the first quarter of 2022 to $157.5 million in 2023.
CrowdStrike Vs Peers
The company’s popular software established a loyal customer base before other brands could compete. That’s why CrowdStrike holds a market share that’s currently around 20% and still increasing. But even though the company may have the best and most comprehensive product on the market, there is plenty of competition in the industry.
Well-known brands like McAfee and NortonLifelock have been around longer and have more partnerships than CrowdStrike. And a large number of newer cybersecurity companies, like SentinelOne, TrendMicro, Fortinet, and Carbon Black, are crowding into the space.
But perhaps the biggest threat is from tech giant Microsoft. Even though Microsoft’s security software isn’t as highly rated or as popular as Falcon, the tech company’s reach extends far beyond CrowdStrike. Microsoft software is already a part of so many systems that adoption of the company’s security suite is simple.
Does CrowdStrike Enjoy a Moat?
The top brass at CrowdStrike believe that its cutting-edge technology and established brand will keep a strong competitive moat going forward. That’s important, as the company looks to take advantage of a cybersecurity industry slated to rise from $174 billion in 2023 to $262 billion four years from now.
The company continues to innovate, recently announcing its Cloud Native Adversary Protection Platform (CNAPP). And CrowdStrike has continued to achieve subscriber growth for its newer security modules like Identity Protection and Log Management.
The company has also grown by creating new partnerships and completing acquisitions. Recent collaborations with Mandiant and Cloudflare mean that CrowdStrike will protect those companies’ customers going forward. And the board has approved the acquisition of 4 companies over the past 5 years, the most recent being the $400 million purchase of Humio in 2021.
How High Could CRWD Go?
Crowdstrike currently has a market capitalization of $35.96 billion. The company’s Price-to-Sales ratio is 14.5, which is high compared to P/S values of around 10 for many of the company’s competitors. That might cause bears to believe that CRWD is overvalued.
But the majority of analysts still consider the stock a buy. Over the next year or so, the average estimate among over 30 analysts is that CRWD will reach around $175, a 16.67% increase from the current price of $150. But some analysts believe the stock will top $200 over the next year, with $235 as the highest estimate.
What Could Go Wrong?
CrowdStrike has earned its name recognition, but continued innovation is critical to keep on top of the industry. Microsoft and other big-tech companies are a major threat due to their huge footprint and the ease of adoption of their products.
It’s also not ideal that the company isn’t profitable yet, but the net loss is decreasing even as CrowdStrike’s revenue is increasing. And the company still has plenty of cash on hand.
Is CRWD a Buy?
Crowdstrike is the leader in cloud-based cybersecurity because it has an effective and disruptive product. The company has consistently grown in revenue and subscribers, and demand for cybersecurity is increasing.
There’s heavy competition in the industry, but rivals aren’t likely to catch up anytime soon. The major risk to investors is that future growth has already been priced in and that the stock is overvalued.
But with CRWD shares trading around $150, the cybersecurity stock appears to be a buy.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.