CrowdStrike (CRWD) Stock Forecast & Analysis

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Updated: 28th Mar 2021
Written by Sean Graytok
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Investing
March 28, 2021
Written by Sean Graytok

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Companies and nations alike are relying on cybersecurity firms to ensure their operations, information, and data are secure in the digital space – and many are depending on CrowdStrike to deliver this peace of mind.

What is CrowdStrike?

CrowdStrike (CRWD) is an American cybersecurity technology company that uses artificial intelligence to deliver cloud-based cyber protection.

Just two years after its IPO, CrowdStrike has become the industry’s leader thanks to its next-gen, subscription-based “Falcon” platform that provides a full suite of products:

  • Anti-Virus
  • Endpoint Detection and Response (EDR)
  • Device Control
  • Managed Threat Hunting
  • IT Hygiene
  • Vulnerability Management
  • Threat Detection

CrowdStrike’s CEO George Kurtz started the company because he saw companies spending millions for security and not getting the outcome they deserve — which is not to get breached.

CrowdStrike leverages AI and machine learning to stop the breach before it happens instead of “stopping malware,” which is the focus of most cybersecurity firms, even though most data breaches don’t use malware.

CrowdStrike flips the traditional cybersecurity model on its head — and it’s being rewarded for doing so.

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CrowdStrike (CRWD) Bull Case

#1. The Salesforce of Security

George Kurtz sees CrowdStrike as the “Salesforce of Security” because it is a cloud-based service that allows the client to pick specific services unique to their situation. This efficient customization level enables clients to save money by only paying for the services they need.

Like Salesforce, CRWD can upsell additional modules to clients as they grow their business and require more insights or security.

This fosters an intimate relationship between CrowdStrike and its customers: as the client grows, CRWD is there with additional offerings to keep them safe, which further engrains it into the business’s fabric.

#2. Subscription Base

An astonishing 92% of CrowdStrike’s annual recurring revenue (ARR) comes from subscriptions, and there are few things Wall Street likes more than ARR.

Recurring revenue models have better future visibility and easier expense management than other ways of doing business. CrowdStrike’s ARR continues to double year after year.

Healthy streams of subscription-based ARR allow CrowdStrike to allocate time and capital in their tech and new customers instead of constantly worrying about renewing its existing contracts.

CrowdStrike’s 75% YoY growth in annual recurring revenue is thanks to its rapidly expanding customer base. The company now has 9,896 subscription customers, up 82% YoY.

Here they are by category:

  • 58 of the Fortune 100
  • 177 of the Fortune 500
  • 12 of the top 20 banks

As you’ll see next, these happy paying customers aren’t going anywhere.

#3. Customer Retention

Customers love the product — 98% of them stay with CrowdStrike, and the company’s dollar-based retention rate for subscription ARR is 125%.

This means that existing customers spend 25% more on CRWD products each year. In fact, 63% of customers subscribe to four or more modules, and nearly half have five or more.

CrowdStrike’s success in cross-selling and upselling makes it deserving of the Salesforce comparison.

#4. Cloud Security TAM

TAM, or total addressable market, is another key indicator for Wall Street. Fortunately for CrowdStrike, the cybersecurity TAM is expanding as companies shift the majority of their data and operations to the cloud.

CrowdStrike estimates its current TAM to be $36.5 billion and projects a 2-year compounded annual growth rate of 9%, up to $43.6 billion in 2023.

The company suggests that corporate cloud workloads are under-protected and that there’s a massive cloud security opportunity. In 2020, just 1.1% of total cloud IT spending was allocated to cloud security,

According to the International Data Corporation (IDC), an organization should spend between 5% and 10% of its IT budget on security.

If companies follow this guidance and spend just 5.7% of their budget on securing their cloud infrastructure, the cloud security opportunity will increase 10x from 2020 to 2023 ($6.1B to $12.4B).

We believe companies will adhere to this guidance as they realize the importance of sufficient IT hygiene.

#5. Partners & Acquisitions

CrowdStrike recently partnered with Amazon to improve its customer roll-on and cut down on its sales and marketing expenses. Now, clients can easily purchase CrowdStrike products through the Amazon Marketplace.

This creates a more efficient sales funnel and allows CRWD to improve its operating leverage.

CrowdStrike has also made key acquisitions in Humio and Preempt to enhance its AI and Zero Trust capabilities, respectively.

See: Best Cybersecurity Stocks

The CrowdStrike (CRWD) Moat: Business is Booming

Simply put, CrowdStrike’s moat is its superior “Falcon” product, which is powered by artificial intelligence and is delivered to customers via the cloud.

The company’s proprietary “Threat Graph” collects data and uses AI and machine learning to continuously update its defense protocols in real-time.

This means that Falcon can take what it learns from an isolated hack and employ new defense algorithms for each client it protects. This is cloud-scale AI at its finest.

The more data the Threat Graph consumes, the smarter CrowdStrike’s AI becomes — i.e., CrowdStrike improves as it gets more customers.

Like Facebook, Square (SQ), and PayPal (PYPL), CrowdStrike benefits from network effects.

In theory, each new client makes Falcon’s security better because it increases the size of the data pool the AI ingests.

Next, Falcon uses “Zero Trust” security, which means everything that’s done internally (within a client’s system) must be authenticated.

Zero Trust capabilities prevent hackers from being able to do anything, even if they get into a system — breaching the gates of the castle doesn’t mean much if you can’t do anything once you’re inside.

Kurtz emphasized that if Zero Trust was implemented across all systems at SolarWinds, the hackers wouldn’t have been able to jump from network to network within their system.

In fact, the hackers tried to penetrate several systems protected by CrowdStrike but could not do so. Following the attack, SolarWinds switched to Falcon’s end-point protection.

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CRWD Earnings Report & Forecast

On March 16, 2021, CrowdStrike reported fourth-quarter earnings per share of 13 cents on revenue of $264.9 million. Here are some other highlights from the call:

  • Q4 revenue increased 74% YoY to $264.9 million
  • Subscription-based revenue increased 77% YoY to $244.7 million
  • Total subscription customers increased 82% YoY to 9,896
  • 75% YoY growth in Annual Recurring Revenue (ARR) to $1.05 billion
  • Third fastest cloud-native SaaS company to reach $1B in ARR (behind Salesforce and Zoom)

CRWD is also settling in on its long-term target operating goals:

  • Sales & Marketing expenses account for 37% of revenue (goal: 30-35%)
  • R&D expenses account for 19% of revenue (goal: 15-20%)
  • General and Admin. expenses account for 8% of revenue (goal: 7-9%)
  • Operating Margin is 13% (goal: 20%+)
  • Subscription Gross Margin reached 80% (goal: 75-80%+)

The stock jumped 7.4% the day after these better-than-expected results.

See: Palantir (PLTR) Stock Analysis

CrowdStrike Bear Case

Some are fearful that the large cloud infrastructure providers (IaaS) will pivot into security offerings and disrupt the smaller cybersecurity names.

This wouldn’t be the first time FAAMG stocks infiltrated a developing market.

Amazon (AMZN), Microsoft, and Google currently provide a combined 61% of the worldwide cloud infrastructure market and are considered the best cloud computing stocks.

What’s to stop them from acquiring cybersecurity firms and building defense products on top of their infrastructure?

Possibly regulators – or fear of antitrust allegations. We believe this concern is deterring them from the fintech space as well.

The next bear case for CrowdStrike is that it’s due for a healthy correction. CRWD was one of the best-performing stocks in 2020 and is “overvalued” by any traditional metric.

Recently, the rising 10-year bond yield has crushed tech stocks. Remember, the high-flying tech valuations come back to Earth when the 10-yr rises. CRWD would likely be included in that rotation.

CrowdStrike Competition

There are different type of cybersecurity; the following are companies that directly compete with CrowdStrike’s Falcon platform:

  • SentinelOne
  • Microsoft (MSFT)
  • Palo Alto Networks (PANW)
  • VMware (VMW)
  • McAfee (MCFE)
  • Fortinet (FTNT)
  • FireEye (FEYE)

CrowdStrike CEO George Kurtz didn’t pull any punches in its most recent earnings call — he criticized both SentinelOne and Microsoft.

Kurtz revealed that a next-generation customer left SentinelOne and joined CrowdStrike because the former’s platform wasn’t scalable, and it actually degraded the performance of the client’s endpoints.

Kurtz also said there’s a “crisis of trust within the Microsoft customer base” and that more companies are starting to reconsider using Microsoft as a one-stop-shop for both their platform and security.

Note, CrowdStrike plans to expand its reach in the security space by adding cloud observability and log management products to Falcon.

This would welcome new competition and make the above list much longer, adding Zscaler (ZS), DataDog (DDOG), Dynatrace (DT), and more.

Does CRWD Belong In Your Portfolio? CRWD Allocation

The right amount of CRWD in your portfolio ultimately depends on your investing goals. Owning individual stocks carry more risk than broad market ETFs that track the S&P 500 or even the tech-heavy Invesco QQQ ETF.

However, the following questions may help gauge your confidence in CRWD stock:

  • Is CrowdStrike’s subscription-based business model attractive and sustainable?
  • Are the marker drivers in cloud security sustainable or a passing trend?
  • Is CrowdStrike well-differentiated against competitors?
  • Are CrowdStrike customers satisfied?
  • Does CrowdStrike have a balanced customer base?
  • Is CrowdStrike led by a strong management team?
  • Will increased digitization positively or negatively influence CrowdStrike’s future?

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Additional CRWD Stock Coverage

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CrowdStrike (CRWD) Stock FAQs

Is CrowdStrike stock a buy?

Many rate CrowdStrike stock a “buy” because of its superior product and subscription-based business model. Investors buying CrowdStrike stock believe the company will lead the cybersecurity boom that is coming over the next few years.

Is CrowdStrike overvalued?

CrowdStrike is an expensive stock by any metric – it has a price to sales ratio of 44x, and its stock price has increased 220% in the previous year.

However, the cybersecurity market is rapidly expanding, and we expect CrowdStrike to capitalize on this opportunity.

Is CrowdStrike publicly traded?

Yes, CrowdStrike is a publicly-traded stock that trades under the ticker symbol “CRWD”. CrowdStrike was founded in 2011 and began trading in the public markets in 2019. It has since become one of the industry-leading cybersecurity stocks.

CrowdStrike (CRWD) Stock Forecast Fast Facts

#1. Threat Graph

The Threat Graph handles more than five trillion events per week or the equivalent of handling more attacks in a single day than Twitter has tweets in a year.

#2. SWAT Team

While 90%+ of CrowdStrike’s revenue comes from subscriptions, 10% comes from their professional service team that responds to breaches – like a CrowdStrike SWAT Team.

Often, these companies are so impressed with CRWD’s response that they subscribe to their subscription offerings following the clean-up.

This serves as a “pull through” where CrowdStrike can turn their one-time service revenue into lifetime recurring revenue.

#3. George Kurtz – The Serial Entrepreneur

Kurtz started Foundstone in 1999, which was a worldwide security products and services company.

McAfee acquired it in 2004 – Kurtz stayed onboard and later became the company’s WorldWide Chief Technology Officer and GM as well as EVP of Enterprise.

Kurtz also authored Hacking Exposed: Network Security Secrets & Solutions, which is the best-selling security book of all time.

Bottom Line: CRWD Stock Forecast & Analysis

Last year marked the most cyber-related crimes in history. Unfortunately, companies will continue to get hacked unless they upgrade their cybersecurity for the increasingly digital world.

CrowdStrike is ready to answer the bell.

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Sean Graytok owns shares of CrowdStrike Holdings, Inc.

Sean Graytok
Sean Graytok
Sean is a lifelong student of the financial, media, and marketing industries. He is a Generation Z investing expert and is on a mission to empower investors to make the most of their money.