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CrowdStrike (NASDAQ:CRWD) Q1: Beats On Revenue, Provides Optimistic Full Year Guidance


Full Report / June 02, 2022
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Cybersecurity company CrowdStrike (NASDAQ:CRWD) announced better-than-expected results in the Q1 FY2023 quarter, with revenue up 61% year on year to $487.8 million. The company expects that next quarter's revenue would be around $514.7 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. CrowdStrike made a GAAP loss of $30.4 million, improving on its loss of $82.8 million, in the same quarter last year.

CrowdStrike (CRWD) Q1 FY2023 Highlights:

  • Revenue: $487.8 million vs analyst estimates of $464.3 million (5.05% beat)
  • EPS (non-GAAP): $0.31 vs analyst estimates of $0.23 (33.1% beat)
  • Revenue guidance for Q2 2023 is $514.7 million at the midpoint, above analyst estimates of $509.9 million
  • The company lifted revenue guidance for the full year, from $2.14 billion to $2.19 billion at the midpoint, a 2.32% increase
  • Free cash flow of $157.5 million, up 23.7% from previous quarter
  • Customers: 17,945, up from 16,325 in previous quarter
  • Gross Margin (GAAP): 74%, in line with same quarter last year

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. As the volume of internet enabled devices grows, every device that employees use to connect to business networks represents a potential risk. Endpoint security software enables businesses to protect devices (endpoints) that employees use for work purposes either on a network or in the cloud from cyber threats.

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 $302.8 million, to $487.8 million.

CrowdStrike Total Revenue

This was another standout quarter with the revenue up a splendid 61% year on year. On top of that, revenue increased $56.8 million quarter on quarter, a solid improvement on the $50.9 million increase in Q4 2022, and happily, a slight re-acceleration of growth.

Guidance for the next quarter indicates CrowdStrike is expecting revenue to grow 52.4% year on year to $514.7 million, slowing down from the 69.7% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 43.9% over the next twelve months.

Customer Growth

You can see below that CrowdStrike reported 17,945 customers at the end of the quarter, an increase of 1,620 on last quarter. That's in line with the customer growth we have seen over the last couple of quarters, suggesting that the company can maintain its current sales momentum.

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, licenses, technical support and other necessary running expenses was at 74% in Q1.

CrowdStrike Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.74 left to spend on developing new products, marketing & sales and the general administrative overhead. This is around the average of what we typically see in SaaS businesses, but it is good to see that the gross margin is staying stable which indicates that CrowdStrike is doing a good job controlling costs and is not under pressure from competition to lower prices.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. CrowdStrike's free cash flow came in at $157.5 million in Q1, up 34.2% year on year.

CrowdStrike Free Cash Flow

CrowdStrike has generated $482 million in free cash flow over the last twelve months, an impressive 29.4% of revenues. This robust FCF margin is a result of CrowdStrike asset lite business model, scale advantages, and strong competitive positioning, and provides it the option to return capital to shareholders while still having plenty of cash to invest in the business.

Key Takeaways from CrowdStrike's Q1 Results

Sporting a market capitalization of $37.4 billion, more than $2.15 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 excited to see that guidance outperformed Wall St’s expectations. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. But investors might have been expecting more and the company is down 2.73% on the results and currently trades at $168 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.

The market is certainly expecting long term growth from CrowdStrike given its price to sales ratio based on the next twelve months is 17.1x. But looking at the tech landscape today, CrowdStrike's qualities as one of the best businesses really stand out and we still like it at this price, despite the higher multiple.

The Wall St analysts covering the company had a one year price target of $241.2 per share right before these results, implying that they saw upside in buying CrowdStrike even in the short term.

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