With the evolution of technology, there has also been a rapid development of new forms of cyber threats that can adversely affect global organizations. One of the relatively frequent forms of cyberattacks these days is ransomware – a malicious software designed to block access to individual or organizational systems until a sum of money is paid. These attacks are made possible by the move to the cloud, the connectivity of which gives hackers a level of access to systems that they have never had before.
Given the prolific nature of these cyberattacks, it has become imperative for cybersecurity companies to come up with reliable and robust solutions that can prevent these attacks and ensure minimal data and monetary losses for companies. This is the reason why many cybersecurity stocks have been soaring as new companies in this domain that are offering the relevant solutions to modern threats are rapidly gaining customers. Today, I am looking to analyze one such company which has been one of the greatest success stories ever since it got listed on the Nasdaq - CrowdStrike Holdings Inc (CRWD, Financial).
Company overview
CrowdStrike Holdings Inc. is a mission-critical Software As A Service (SaaS) company based in Sunnyvale, California. It was the first cloud-native SaaS endpoint security platform to provide cloud workload and endpoint security, cyberattack response services and threat intelligence. The company leverages the power of the cloud and advanced artificial intelligence to defeat cyber threats. CrowdStrike helps businesses train for, react to and remediate security breaches and enables organizations to respond quickly and effectively and get back to business faster. The company offers many cybersecurity, cloud security and threat intelligence solutions and caters to the particularly fast-growing ransomware market. CrowdStrike was founded in 2011 and is currently headed by Co-Founder and CEO George Kurtz.
Rising subscriptions and recurring revenue
CrowdStrike's sales have been booming, and there is a rapid growth in its subscriptions and its Annual Recurring Revenue (ARR). It is one of the fastest-growing cybersecurity stocks in the market in this respect which is why investors are willing to pay a premium for CrowdStrike stocks. The company has been an early-mover advantage in the relatively new market for cloud-native cybersecurity solutions which is what helped it, onboard clients, at a rapid pace. Its revenue growth was as high as 93% in fiscal 2020 despite the pandemic and it was around 82% in fiscal 2021. CrowdStrike is halfway through its 2022 fiscal and has grown by an impressive 70 % year-over-year in the first half with an expected growth of between 59-61% for the entire fiscal year. The company saw its number of subscription customers increase from 5,431 in fiscal 2020 to 9,896 in 2021 and it had as many as 13,080 subscription customers in the second quarter of fiscal 2022, which was an impressive 81% growth year-over-year. The company also states that 66% of its subscribers had adopted four or more of its modules which resulted in a fast growing ARR. CrowdStrike’s ARR increased from $600 million in fiscal 2020 to $1.34 billion in its latest quarter. Moreover, CrowdStrike's dollar-based net retention rate has also consistently remained above 120% since its IPO. These are critical factors that are keeping its valuation high.
Increasing ransomware fuelling growth
Cybercrime is becoming increasingly rampant, which is why the cybersecurity market is growing rapidly with every passing year. With the rise in ransomware and security breaches, companies can no longer overlook or postpone cybersecurity. The SolarWinds hack left 18,000 companies exposed, including government agencies and Fortune 500 companies. The industry got a shock again with Microsoft's (MSFT, Financial) vulnerabilities, compromising around 250,000 organizations.
The situation has become so grave that the FBI and Cybersecurity and Infrastructure Security Agency (CISA) have formally warned U.S. corporations to tighten their security solutions. This creates a huge addressable market for CrowdStrike. As a matter of fact, the company has managed to onboard Fortune 500 clients who became victims of ransomware attacks before they chose to deploy CrowdStrike's security solutions. The graveness of the security breaches is such that clients are adopting more and more modules of CrowdStrike’s offerings to prevent calamity.
Around 29% of CrowdStrike clients have six or more cloud modules. Clearly, the company still has a vast addressable market as there continue to be many large companies who are still using outdated cybersecurity solutions who might look to move to a safer and more robust product like that of CrowdStrike when their current subscriptions expire or their security is breached.
Final thoughts
We can clearly see that CrowdStrike’s stock has had a phenomenal growth trajectory over the past year. I believe that the company's valuations are extremely rich as of date with an enterprise-value-to-revenue multiple of 48.85 and a price-book ratio of 62.63. However, despite the expensive nature of the stock, CrowdStrike might still be worth buying at current levels, since the company has beaten analysts' expectations every quarter since the launch of its IPO. I believe that CrowdStrike is the kind of stock where investors could follow a nice monthly systematic investment plan or even a buy-on-dips approach.
