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CrowdStrike (CRWD) Research Report: Q1 CY2024 Update


Full Report / June 04, 2024

Cybersecurity company CrowdStrike (NASDAQ:CRWD) reported Q1 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 33% year on year to $921 million. The company expects next quarter's revenue to be around $959.8 million, in line with analysts' estimates. It made a non-GAAP profit of $0.93 per share, improving from its profit of $0.57 per share in the same quarter last year.

CrowdStrike (CRWD) Q1 CY2024 Highlights:

  • Revenue: $921 million vs analyst estimates of $904.8 million (1.8% beat)
  • EPS (non-GAAP): $0.93 vs analyst estimates of $0.89 (4.4% beat)
  • Revenue Guidance for Q2 CY2024 is $959.8 million at the midpoint, roughly in line with what analysts were expecting
  • The company lifted its revenue guidance for the full year from $3.96 billion to $3.99 billion at the midpoint, a 0.9% increase
  • Gross Margin (GAAP): 75.6%, in line with the same quarter last year
  • Free Cash Flow of $322.5 million, up 13.7% from the previous quarter
  • Annual Recurring Revenue: $3.65 billion at quarter end, up 33.5% year on year
  • Market Capitalization: $74.66 billion

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 three years, growing from $302.8 million in Q1 2022 to $921 million this quarter.

CrowdStrike Total Revenue

Unsurprisingly, this was another great quarter for CrowdStrike with revenue up 33% year on year. On top of that, its revenue increased $75.7 million quarter on quarter, a very strong improvement from the $59.32 million increase in Q4 CY2023. This is a sign of re-acceleration of growth and great to see.

Next quarter's guidance suggests that CrowdStrike is expecting revenue to grow 31.2% year on year to $959.8 million, slowing down from the 36.7% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 28.3% 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 75.6% in Q1.

CrowdStrike Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.76 left to spend on developing new products, sales and marketing, and general administrative overhead. 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. It's also comforting 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 $322.5 million in Q1, up 41.8% year on year.

CrowdStrike Free Cash Flow

CrowdStrike has generated $1.03 billion in free cash flow over the last 12 months, an eye-popping 31.5% 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 Q1 Results

It was encouraging to see CrowdStrike narrowly top analysts' revenue and ARR (annual recurring revenue) expectations this quarter, showing customers continue investing in its products. We were also glad it raised its full-year revenue and EPS guidance, which beat Wall Street's projections. Zooming out, we think this was a great quarter, showing that the company is staying on target. The stock is flat after reporting and trades at $305.83 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 numerous reasons why we think CrowdStrike is one of the best software as service companies out there. While we'd expect growth rates to moderate from here, its revenue growth has been exceptional over the last three years. Additionally, its bountiful generation of free cash flow empowers it to invest in growth initiatives, and its efficient customer acquisition hints at the potential for strong profitability.

There's no doubt the market is optimistic about CrowdStrike's growth prospects, as its 18.1x price-to-sales ratio based on the next 12 months would suggest. Looking at the tech landscape today, CrowdStrike's qualities as one of the best businesses really stand out. There's no doubt it's a bit of a market darling given its higher multiple, but we don't mind paying a premium for a high-quality business. We would argue it's often wise to hold them over the long term even if expectations are high.

Wall Street analysts covering the company had a one-year price target of $399.37 right before these results (compared to the current share price of $292.80).

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