CrowdStrike (NASDAQ:CRWD) Exceeds Q4 Expectations, Stock Soars

Full Report / March 07, 2023
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Cybersecurity company CrowdStrike (NASDAQ:CRWD) reported results ahead of analyst expectations in the Q4 FY2023 quarter, with revenue up 47.9% year on year to $637.4 million. Guidance for next quarter's revenue was $676.6 million at the midpoint, which is 1.54% above the analyst consensus. CrowdStrike made a GAAP loss of $48.9 million, down on its loss of $41.7 million, in the same quarter last year.

CrowdStrike (CRWD) Q4 FY2023 Highlights:

  • Revenue: $637.4 million vs analyst estimates of $626.8 million (1.68% beat)
  • EPS (non-GAAP): $0.47 vs analyst estimates of $0.43 (10.4% beat)
  • Revenue guidance for Q1 2024 is $676.6 million at the midpoint, above analyst estimates of $666.3 million
  • Management's revenue guidance for upcoming financial year 2024 is $2.98 billion at the midpoint, in line with analyst expectations and predicting 33.2% growth (vs 55.1% in FY2023)
  • Free cash flow of $209.5 million, up 20.3% from previous quarter
  • Customers: 23,019, up from 21,146 in previous quarter
  • Gross Margin (GAAP): 72.4%, down from 73.9% 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 two years, growing from quarterly revenue of $264.9 million in Q4 FY2021, to $637.4 million.

CrowdStrike Total Revenue

And unsurprisingly, this was another great quarter for CrowdStrike with revenue up 47.9% year on year. On top of that, revenue increased $56.5 million quarter on quarter, a very strong improvement on the $45.7 million increase in Q3 2023, and a sign of acceleration of growth.

Guidance for the next quarter indicates CrowdStrike is expecting revenue to grow 38.7% year on year to $676.6 million, slowing down from the 61.1% 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 $2.98 billion at the midpoint, growing 33.2% compared to 54.4% increase in FY2023.

Customer Growth

You can see below that CrowdStrike reported 23,019 customers at the end of the quarter, an increase of 1,873 on last quarter. That is a fair bit better customer growth than last quarter and quite a bit above the typical customer growth we have seen lately, demonstrating that the business itself has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well.

CrowdStrike Customers


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 72.4% in Q4.

CrowdStrike Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.72 left to spend on developing new products, marketing & sales and the general administrative overhead. This is around the lower 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.

Cash Is King

If you have followed 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 $209.5 million in Q4, up 64.5% year on year.

CrowdStrike Free Cash Flow

CrowdStrike has generated $676.8 million in free cash flow over the last twelve months, an impressive 30.2% 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

Sporting a market capitalization of $29.9 billion, more than $2.71 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 the company also beat on ARR and free cash flow. Additionally, we were glad to see the acceleration in customer growth. While revenue guidance for next year indicates a slowdown, we think this was a strong quarter for Crowdstrike. The company is up 7.71% on the results and currently trades at $134.54 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 bountiful generation of free cash flow empowers it to invest in growth initiatives, and its very efficient customer acquisition hints at the potential for strong profitability.

The market is certainly expecting long term growth from CrowdStrike given its price to sales ratio based on the next twelve months is 9.9x. And looking at the tech landscape today, CrowdStrike's qualities stand out, we think that the multiple is justified and we still like it at this price.

The Wall St analysts covering the company had a one year price target of $159.7 per share right before these results, implying that they saw upside in buying CrowdStrike even in the short term.

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