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CrowdStrike (NASDAQ:CRWD) Exceeds Q3 Expectations


Full Report / November 28, 2023

Cybersecurity company CrowdStrike (NASDAQ:CRWD) reported Q3 FY2024 results beating Wall Street analysts' expectations, with revenue up 35.3% year on year to $786 million. The company expects next quarter's revenue to be around $838.3 million, in line with analysts' estimates. It made a non-GAAP profit of $0.82 per share, improving from its profit of $0.40 per share in the same quarter last year.

CrowdStrike (CRWD) Q3 FY2024 Highlights:

  • Revenue: $786 million vs analyst estimates of $777.4 million (1.1% beat)
  • ARR: $3.15 billion slight beat vs. expectations of $3.14 billion
  • EPS (non-GAAP): $0.82 vs analyst estimates of $0.74 (10.9% beat)
  • Revenue Guidance for Q4 2024 is $838.3 million at the midpoint, roughly in line with what analysts were expecting
  • Full year guidance raised for revenue, non-GAAP operating profit, non-GAAP EPS
  • Free Cash Flow of $239 million, up 26.7% from the previous quarter
  • Gross Margin (GAAP): 75.2%, up from 72.8% in the 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.

Endpoint Security

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 impressive over the last two years, growing from $380.1 million in Q3 FY2022 to $786 million this quarter.

CrowdStrike Total Revenue

Unsurprisingly, this was another great quarter for CrowdStrike with revenue up 35.3% year on year. On top of that, its revenue increased $54.39 million quarter on quarter, a very strong improvement from the $39.05 million increase in Q2 2024. This is a sign of acceleration of growth and great to see.

Next quarter, CrowdStrike is guiding for a 24% year-on-year revenue decline to $838.3 million, a further deceleration from the 47.9% year-on-year decrease it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 29% over the next 12 months before the earnings results announcement.

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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 75.2% in Q3.

CrowdStrike Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.75 left to spend on developing new products, sales and marketing, and general administrative overhead. Trending up over the last year, CrowdStrike's impressive gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. CrowdStrike's free cash flow came in at $239 million in Q3, up 37.3% year on year.

CrowdStrike Free Cash Flow

CrowdStrike has generated $864.6 million in free cash flow over the last 12 months, an eye-popping 30.5% of revenue. This robust FCF margin stems from its asset-lite business model, scale advantages, and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a healthy cash balance.

Key Takeaways from CrowdStrike's Q3 Results

Sporting a market capitalization of $50.16 billion, more than $3.17 billion in cash on hand, and positive free cash flow over the last 12 months, we believe that CrowdStrike is attractively positioned to invest in growth.

CrowdStrike narrowly top analysts' ARR (annual recurring revenue) and revenue expectations this quarter but beat on non-GAAP operating income and non-GAAP EPS by a more convincing amount. While next quarter's revenue guidance was only in-line, non-GAAP operating income was head. Full year guidance was also raised. Zooming out, we think this was a decent quarter, showing that the company is staying on target. Investors were likely expecting more, and the stock is down 1.4% after reporting, trading at $209.5 per share.

Is Now The Time?

When considering an investment in CrowdStrike, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

There are several reasons why we think CrowdStrike is a great business. While we'd expect growth rates to moderate from here, its revenue growth has been exceptional over the last two years. Additionally, its bountiful generation of free cash flow empowers it to invest in growth initiatives, and its efficient customer acquisition is better than many similar companies.

There's no doubt that the market is optimistic about CrowdStrike's growth prospects, as its price to sales ratio based on the next 12 months of 14.1x would suggest. Looking at the tech landscape today, CrowdStrike's qualities really stand out, and it's not hard for us to argue that the multiple is well deserved. We really like the stock at this price.

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