If you’ve been following the markets, you’ll know that tech stocks have been quite volatile recently. Even though investors showed great enthusiasm towards the sector this year, they’ve started to realize that not all soaring tech stocks will be long-term winners. Think about it; for some companies, the COVID-19 pandemic served as a major catalyst, but once the virus is gone and the situation goes back to normal, will their business be as great as it is today?
And that, my dear reader, is why CrowdStrike Holdings Inc (NASDAQ:CRWD) could be special.
CRWD is one of the stocks that performed exceptionally well during the extraordinary environment created by COVID-19, surging more than 160% year to date. More importantly, due to the nature of its business, CrowdStrike should have no problem continuing to prosper long after the pandemic ends.
Allow me to explain…
Headquartered in Sunnyvale, California, CrowdStrike is in the cybersecurity business. The company was founded in 2011, so it was quite late in entering an industry that already has established players like NortonLifeLock Inc (NASDAQ:NLOK). However, because of CrowdStrike’s focus on providing cloud-delivered endpoint protection, it’s managed to establish a solid market position in the cloud era.
In particular, the company offers a multi-tenant, cloud native, intelligent security platform called “Falcon.” The platform is capable of protecting workloads across on-premise, virtualized, and cloud-based environments running on a variety of endpoints such as desktops, laptops, virtual machines, servers, and Internet of Things (IoT) devices.
Right now, CrowdStrike offers 11 cloud modules on its Falcon platform through a software as a service (SaaS) subscription-based model. The neat thing about having a subscription-based model is that it allows the company to run a recurring business. In the most recent reporting period, subscription revenue represented 92.6% of CrowdStrike’s total revenue. (Source: “CrowdStrike Reports Fiscal Second Quarter 2021 Financial Results,” CrowdStrike Holdings Inc, September 2, 2020.)
In the fast-changing tech world, being able to generate a recurring revenue stream is certainly appealing to investors.
Better yet, CrowdStrike’s subscriber base is expanding. As of July 31, 2020, the company had 7,230 subscription customers, which represents a 91% increase from a year ago.
Notably, CrowdStrike serves 49 of the Fortune 100 companies and 11 of the top 20 banks. (Source: “Corporate Overview September 2020,” CrowdStrike Holdings Inc, last accessed September 14, 2020.)
Customers are also using more of CrowdStrike’s services than before. Three years ago, only 17% of the company’s subscription customers had four or more of the company’s cloud module subscriptions. Now the share has grown to 57%.
With a rapidly expanding customer base and increasing usage of the Falcon platform, CrowdStrike has substantially improved its financials.
In the second quarter of the company’s fiscal year 2021, which ended July 31, 2020, it generated $199.0 million of total revenue, marking an 84% increase year-over-year. Annual recurring revenue, a critical measure of an SaaS company’s performance, grew 87% year-over-year to $790.6 million.
And it’s not just the top-line number that got better. In the reporting quarter, CrowdStrike Holdings Inc generated an adjusted net income of $0.03 per share, which marked a substantial improvement from the year-ago period, when the company had an adjusted net loss of $0.18 per share.
At the same time, CrowdStrike generated $32.4 million in free cash flow in the second fiscal quarter. Again, this was great news; in the prior-year quarter, its free cash flow was negative $29.2 million.
And that’s not all. Seeing the increasing demand for the company’s offerings, management is raising their guidance.
In the latest earnings conference call, CrowdStrike’s chief financial officer, Burt Podbere, said, “For the full fiscal year 2021, we currently expect total revenue to be in the range of $809.1 million to $826.7 million, reflecting a growth rate of 68% to 72% over the 2020 fiscal year… Utilizing weighted average shares used in computing diluted non-GAAP net income per share of $234 million, we expect non-GAAP net income per share to be in the range of $0.02 to $0.08.” (Source: “CrowdStrike Holdings, Inc. (CRWD) CEO George Kurtz on Q2 2021 Results – Earnings Call Transcript,” Seeking Alpha, September 2, 2020.)
Note that, during the previous earnings call, management was projecting an adjusted net loss for CrowdStrike’s fiscal 2021. Therefore, if the company can deliver on the new guidance—meaning it continues strong revenue growth while achieving non-GAAP profitability for the entire fiscal year—it could further boost the investor appeal of CrowdStrike stock.
CrowdStrike Holdings Inc (NASDAQ:CRWD) Stock Chart
Chart courtesy of StockCharts.com
Today, cybersecurity is about much more than just protecting the files on your desktop. With more and more endpoints being connected to the cloud, the demand for cloud-based cybersecurity solutions should only go up, regardless of whether people keep working from home due to the pandemic or not. And that’s why CrowdStrike Holdings Inc is a name with long-term appeal.
Bottom line: the company has already built an entrenched position in a market that is benefiting from a secular tailwind. With a rapidly growing business and improving financials, it is well-positioned to deliver more returns to CRWD stock investors.