Is It Time To Sell Crowdstrike Now?

Hey guys, Jonathan here.

Today, I will be sharing with you more about Crowdstrike and its valuations, so read on to find out more!

If you haven’t read my previous Crowdstrike post yet, click here to read it before diving into this article!

For those of you who prefer reading, this is the companion write-up to my YouTube video here.

Welcome back to the favourite place of Growth Investors and aspiring full-time investors! 

In an earlier video (7 Jan), we talked about the Solarwinds hack and its significance. 

A brief recap: This hack exposed big entities such as the US treasury, Commerce, homeland security and more departments. 

Apart from the Solarwinds hack, you may also have seen Microsoft in the news recently, and it wasn’t good. 

It was reported that Microsoft Exchange (Microsoft’s email system) had vulnerabilities that allowed hackers to steal company emails. 

Reports noted that as many as 30,000 US organisations had been hacked. 

Definitely disturbing news for the affected companies, as well as their clients and customers. 

As an investor, when we learn of major world problems like this, we have to put on our investing cap.

Ask this question: Which company will profit the most by solving these problems?

And remember this: Within Crisis Lies Opportunity.

With that, it should come as no surprise that our favorite company Crowdstrike is poised to take this opportunity to boost shareholder returns.

Anyway, Crowdstrike just released its Q4 FY21 earnings two days ago. 

Let’s see if Crowdstrike benefited from these big hack events. 

💰1: Growing Awareness Of The Importance Strong, Fast Cybersecurity 

During the earnings call, Crowdstrike CEO George Kurtz revealed that company board executives are increasingly concerned about the frequent reports of vulnerability to hacks. 

Big companies still on legacy systems are recognizing the need to transform security. They are making the move to engage Crowdstrike for its tightly integrated, cloud-native single-agent architecture. 

This past quarter, biopharma giant Pfizer (currently leading covid19 vaccine research) purchased seven out of Crowdstrike’s ten Falcon modules. 

US Multinational consumer goods giant Procter & Gamble also joined the ranks of Crowdstrike clients. 

It looks like these big players have had enough of legacy security solutions which can no longer protect against today’s increasingly sophisticated threats.

Here’s another interesting client: 

Crowdstrike announced that Israeli Bank Leumi selected Crowdstrike to protect their endpoints and future-proof their security architecture. 

Of course, I googled Bank Leumi – and learned that they are the biggest bank in Israel! For my Israeli friends, please pardon my ignorance; I have never visited your country before. 

Reading further, I learned that Bank Leumi was established in 1902. This is a business that has survived over a hundred years! 

I don’t know about you, but if I were the CTO of a company, and if I were to see a hundred-year-old company upgrading technologies, I would be very concerned for my own company, and the consequences for not upgrading our systems to Crowdstrike.

I see it as a good thing that the SolarWinds and Microsoft hack incidents have raised awareness amongst the leadership of companies to take cyber security seriously.

Companies are starting to see the importance of upgrading to a security solution that gives real-time threat data like Crowdstrike. 

Legacy systems are no longer enough to block off today’s cyber threats.

 💰2: Many companies switching their solutions to Crowdstrike

Now, let’s look at companies switching to Crowdstrike for cyber security. 

This past quarter, Crowdstrike gained Salesforce (NYSE:CRM, aka mother of all SaaS companies) as a client. Even though Salesforce already had an existing cloud security solution (SentinelOne), they decided to work with Crowdstrike for the latter’s faster speeds and ability to scale bigger.

Crowdstrike ‘beats’ SentinelOne, another large technology startup, replacing them as cloud security provider of choice. Before, we considered SentinelOne a potential threat to Crowdstrike as they were growing well and planned to file for IPO. 

After this earnings call, I don’t see SentinelOne as a threat anymore. 

Companies are choosing Crowdstrike because SentinelOne was not a scalable solution, and dramatically degraded endpoint performance, causing instability and impacted developer productivity.

This new information validates Crowdstrike solutions as superior to legacy solutions, as well as to next-gen cloud security solutions.

Crowdstrike’s first mover advantage gives them a huge head start, placing them at the forefront of their sector. 

💰 3: Let’s Look Some Numbers for Crowdstrike

The information in this section is drawn from ‘Crowdstrike Corporate Overview March 2021’ investor presentation slides

1. Revenue 

Crowdstrike hit a record billion dollars revenue this quarter, making it one of the fastest companies to hit a billion dollars since IPO (Jun 2019).

Crowdstrike grew at the impressive rate of 75% this past year. Yes, it’s a little less than the previous year’s 80%. As a company grows bigger, it becomes harder to grow at rates like 90% to 100% as revenue base increases. 

For example, if your company revenue is $5 million, you only need to grow revenue by $5 million to double your revenue. 

If your company revenue is $1 billion, you would need to grow another $1 billion dollars to double your revenue. That would be harder.

2. Customer Growth 

This slide shows an 82% increase in customer base on FY20. 

This is not surprising. With hacker attacks on the rise, more companies recognize the need to adopt Crowdstrike’s solution for real time detection of threats, sooner rather than later.

3. Increase in Customer Spending 

Crowdstrike’s dollar-based retention rate is 125% this quarter, while gross customer retention rate is 98%. 

A dollar-based retention of 125% means that if a customer spent $100 the previous year, their current year spending increased to $125. Is this a good sign? YES! 

What is gross customer retention? This means that out of 100 existing customers, only 2 left thm over the past year. Do you think Crowdstrike’s customers are happy and satisfied? Again, YES!

4. Margins 

Crowdstrike has delivered again on their margins.

Crowdstrike’s gross margins are increasing thanks to the economies of scale they have built up. 

Big-league clients like Procter and Gamble, Pfizer, and Bank Leumi are coming to rely on Crowdstrike’s capabilities. Crowdstrike are handling ever-increasing volumes and this boosts margins.

This is great news for us as investors. Higher margins translate into bigger profits for a business. 

Now, we have come to the final question…

“So Jon, will you continue to hold Crowdstrike?“

I think you know what my answer will be ☺ 

Did you learn something from this quick read? Do you know someone who has invested in Crowdstrike? If so, share this article! 

Let’s put more investors into more households. 

I’ll sign off with my usual reminder to say no to lousy companies – only buy the best growth companies in the world!