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CrowdStrike (NASDAQ:CRWD) Surprises With Q4 Sales, Stock Jumps 12.6%


Full Report / March 09, 2022
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Cybersecurity company CrowdStrike (NASDAQ:CRWD) reported Q4 FY2022 results that beat analyst expectations, with revenue up 62.6% year on year to $431 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $462.1 million at the midpoint, 4.85% above what analysts were expecting. CrowdStrike made a GAAP loss of $41.7 million, down on its loss of $19 million, in the same quarter last year.

CrowdStrike (CRWD) Q4 FY2022 Highlights:

  • Revenue: $431 million vs analyst estimates of $412.3 million (4.51% beat)
  • EPS (non-GAAP): $0.30 vs analyst estimates of $0.20 (47.8% beat)
  • Revenue guidance for Q1 2023 is $462.1 million at the midpoint, above analyst estimates of $440.7 million
  • Management's revenue guidance for upcoming financial year 2023 is $2.14 billion at the midpoint, beating analyst estimates by 6.8% and predicting 47.9% growth (vs 66.4% in FY2022)
  • Free cash flow of $127.3 million, roughly flat from previous quarter
  • Customers: 16,325, up from 14,687 in previous quarter
  • Gross Margin (GAAP): 73.8%, down from 74.8% 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 $264.9 million, to $431 million.

CrowdStrike Total Revenue

This was another standout quarter with the revenue up a splendid 62.6% year on year. On top of that, revenue increased $50.9 million quarter on quarter, a very strong improvement on the $42.3 million increase in Q3 2022, and a sign of re-acceleration of growth, which is very nice to see indeed.

Guidance for the next quarter indicates CrowdStrike is expecting revenue to grow 52.6% year on year to $462.1 million, slowing down from the 70% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $2.14 billion at the midpoint, growing 47.9% compared to 66.4% increase in FY2022.

Customer Growth

You can see below that CrowdStrike reported 16,325 customers at the end of the quarter, an increase of 1,638 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 73.8% in Q4.

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. 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 $127.3 million in Q4, up 30.7% year on year.

CrowdStrike Free Cash Flow

CrowdStrike has generated $441.7 million in free cash flow over the last twelve months, an impressive 30.4% 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 Q4 Results

With a market capitalization of $35.9 billion, more than $1.99 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We were impressed by the exceptional revenue growth CrowdStrike delivered this quarter. And we were also glad that the revenue guidance for the rest of the year exceeded expectations. On the other hand, it was a little less exciting that the revenue guidance for next year indicated the growth will be slowing down. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is up 12.6% on the results and currently trades at $191.54 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 19.4x. Looking at the tech landscape today, CrowdStrike's qualities really stand out, and we really like it at this price.

The Wall St analysts covering the company had a one year price target of $268.3 per share right before these results, implying that they saw upside in buying CrowdStrike even in the short term.

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