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Crowdstrike (NASDAQ:CRWD) Surprises With Q2 Sales, Upgrades Full Year Guidance


Full Report / August 31, 2021
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Cybersecurity company Crowdstrike (NASDAQ:CRWD) reported Q2 FY2022 results topping analyst expectations, with revenue up 69.7% year on year to $337.6 million. Crowdstrike made a GAAP loss of $57.3 million, down on its loss of $29.8 million, in the same quarter last year.

Crowdstrike (CRWD) Q2 FY2022 Highlights:

  • Revenue: $337.6 million vs analyst estimates of $323.5 million (4.37% beat)
  • EPS (non-GAAP): $0.11 vs analyst estimates of $0.09 (28.9% beat)
  • Revenue guidance for Q3 2022 is $361.6 million at the midpoint, above analyst estimates of $351.7 million
  • The company lifted revenue guidance for the full year, from $1.35 billion to $1.4 billion at the midpoint, a 3.24% increase
  • Free cash flow of $73.6 million, down 37.2% from previous quarter
  • Customers: 13,080, up from 11,420 in previous quarter
  • Gross Margin (GAAP): 73.2%, down from 74% previous quarter

Founded by George Kurtz, the former CTO of the antivirus company McAfee, CrowdStrike (NASDAQ:CRWD) provides cybersecurity software that protects companies from breaches and helps them detect and respond to cyber attacks.

Unlike the legacy antivirus products which are typically rules-based and on-premise, CrowdStrike's Falcon platform is cloud-based and uses prevention-and-detection technology based on machine-learning and artificial intelligence that looks for behavioral attack patterns and indicators of attack to identify bad actors. As a result, it is easier and cheaper to deploy, works on any device and it has superior efficacy rates in detecting threats compared to the legacy competitors.

The story of CrowdStrike started in 2011 when the founder George Kurtz watched a fellow plane passenger turn his laptop on and wait 15 minutes for the antivirus software to stop scanning before he could use the computer. Despite the existence of several antivirus software at that time, CrowdStrike has enjoyed huge success over the years due to its ease of deployment and its expanding focus on the growing market of cloud applications and infrastructure.

Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks. The migration of businesses to the cloud and employees working remotely in insecure environments are also contributing to increasing demand for modern cybersecurity software.

Crowdstrike is competing with legacy security platforms that are expanding their cloud security capabilities, such as products offered by Microsoft (NASDAQ:MSFT) and Symantec, and also with cloud-native solutions such as SentinelOne (NYSE:S) and Zscaler (NASDAQ:ZS).

Sales Growth

As you can see below, Crowdstrike's revenue growth has been incredible over the last year, growing from quarterly revenue of $198.9 million, to $337.6 million.

Crowdstrike Total Revenue

This was another standout quarter with the revenue up a splendid 69.7% year on year. Quarter on quarter the revenue increased by $34.8 million in Q2, which was roughly in line with the Q1 2022 increase. This steady quarter-on-quarter growth shows the company is able to maintain a strong growth trajectory.

Analysts covering the company are expecting the revenues to grow 41.8% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

Customer Growth

You can see below that Crowdstrike reported 13,080 customers at the end of the quarter, an increase of 1,660 on last quarter. That's about the same customer growth as what we seen last quarter and quite a bit above what we have typically seen over the last year, confirming the company is sustaining a good pace of sales.

Crowdstrike Customers

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Crowdstrike's gross profit margin, an important metric measuring how much money there is left after paying for servers, licences, technical support and other necessary running expenses was at 73.2% in Q2.

Crowdstrike Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.73 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop this is still around the average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market, so it is important to track.

Key Takeaways from Crowdstrike's Q2 Results

Sporting a market capitalization of $64.6 billion, more than $1.78 billion in cash and with positive free cash flow over the last twelve months, we're confident that Crowdstrike has the resources it needs to pursue a high growth business strategy.

We were impressed by the exceptional revenue growth Crowdstrike delivered this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, there was a deterioration in gross margin. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is down -3.9% on the results and currently trades at $270 per share.

Is Now The Time?

When considering Crowdstrike, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. There are a number of reasons why we think Crowdstrike is a great business. While we would expect growth rates to moderate from here, its revenue growth has been exceptional, over the last two years. On top of that, its very efficient customer acquisition hints at the potential for strong profitability, and its bountiful generation of free cash flow empowers it to invest in growth initiatives.

Crowdstrike's price to sales ratio based on the next twelve months of 39.7x indicates that the market is definitely optimistic about its growth prospects. But looking at the tech landscape today, Crowdstrike's qualities stand out and we still like it at this price.

The Wall St analysts covering the company had a one year price target of $286 per share right before these results, implying that they saw upside in buying Crowdstrike even in the short term.

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