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CrowdStrike (NASDAQ:CRWD) Reports Q2 In Line With Expectations


Full Report / August 30, 2023

Cybersecurity company CrowdStrike (NASDAQ:CRWD) reported results in line with analysts' expectations in Q2 FY2024, with revenue up 36.7% year on year to $731.6 million. The company also expects next quarter's revenue to be around $776.7 million, in line with analysts' estimates. Turning to EPS, CrowdStrike made a non-GAAP profit of $0.74 per share, improving from its profit of $0.36 per share in the same quarter last year.

CrowdStrike (CRWD) Q2 FY2024 Highlights:

  • Revenue: $731.6 million vs analyst estimates of $724.4 million (1% beat)
  • EPS (non-GAAP): $0.74 vs analyst estimates of $0.56 (32.7% beat)
  • Revenue Guidance for Q3 2024 is $776.7 million at the midpoint, roughly in line with what analysts were expecting
  • The company slightly raised its revenue guidance for the full year, and it now stands at¬†$3.04 billion at the midpoint
  • Free Cash Flow of $188.7 million, down 17% from the previous quarter
  • Gross Margin (GAAP): 75%, up from 73.7% 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.

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 exceptional over the last two years, growing from $337.7 million in Q2 FY2022 to $731.6 million this quarter.

CrowdStrike Total Revenue

Unsurprisingly, this was another great quarter for CrowdStrike with revenue up 36.7% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $39 million in Q2 compared to $55.2 million in Q1 2024. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter's guidance suggests that CrowdStrike is expecting revenue to grow 33.7% year on year to $776.7 million, slowing down from the 52.8% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 30.1% 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% in Q2.

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. CrowdStrike's gross margin is around the average of a typical SaaS businesses. It's encouraging to see its gross margin remain stable, indicating that CrowdStrike is controlling its costs and not under pressure from its competitors to lower prices.

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 $188.7 million in Q2, up 39% year on year.

CrowdStrike Free Cash Flow

CrowdStrike has generated $799.7 million in free cash flow over the last 12 months, an eye-popping 30.4% 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 Q2 Results

Sporting a market capitalization of $34.8 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.

Revenue beat slightly and non-GAAP operating profit beat more handily. Guidance for the next quarter was in line for revenue but above for non-GAAP operating profit. Full year guidance was raised. Some minor negatives included ARR (annual recurring revenue, a leading indicator of revenue) that was just in line. Investors were likely expecting more, and the stock is down 1.05% after reporting, trading at $147.7 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. On top of that, 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 10.5x would suggest. Looking at the tech landscape today, CrowdStrike's qualities really stand out, and we really like it at this price.

Wall Street analysts covering the company had a one year price target of $179.8 per share right before these results, implying that they saw upside in buying CrowdStrike even in the short term.

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