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Entrepreneur
Kurra Bewarse
Username: Entrepreneur

Post Number: 3440
Registered: 05-2011
Posted From: 65.35.45.47

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Posted on Thursday, March 18, 2021 - 6:39 am:   

CRWD CrowdStrike secures more gains as impressive report helps justify rich valuation (205.28 +8.97)

CrowdStrike (CRWD), the leading provider of endpoint security systems, operates at the crossroads of a few powerful trends that have shaped it into one of the fastest growing cloud computing companies of all time. As a cybersecurity company, CRWD's technology is in high demand due to the growing volume, complexity, and severity of cyber-attacks. Since the company also specializes in securing the ever-increasing number of devices that access enterprises' cloud networks, CRWD is at the center of the digital transformation and the work-from-anywhere transition.

Combined with its expanding capabilities and acquisitions, these trends pushed CRWD's annualized recurring revenue (ARR) to over $1 bln this past fiscal year, making it the third fastest cloud-based SaaS company to reach that milestone, according to CEO George Kurtz. The two ahead of it are cloud bellwethers Salesforce.com (CRM) and Zoom Video (ZM).

The company's astounding growth was on display again last night when it reported strong, upside Q4 results that featured several impressive metrics. We're struggling to identify any real blemish within CRWD's results, but some may point out that revenue growth slipped to 74% from the mid-80% range it generated over the past few quarters. If that is the worst aspect of CRWD's report, though, then it's clear that the company is performing exceptionally well.

Indeed, the company's results reveal that business is booming, as illustrated by the 1,480 net new subscription customers (+82% yr/yr) it added during the quarter. Not only is CRWD adding new customers at a breakneck pace, but its existing customers are also expanding their usage. Customers that have adopted four or more of its modules surged by 63%, validating CRWD's land-and-expand approach.

During the earnings conference call last night, Kurtz addressed the recent high-profile cyber-attacks perpetrated against SolarWinds (SWI) and Microsoft (MSFT). Although Kurtz doesn't believe that the SWI hack had a material impact on CRWD's Q4 results, he did state that the event represents another longer-term tailwind to the industry. Regarding MSFT, Kurtz characterized the situation as a "crisis of trust" among MSFT's customer base, adding that CRWD has seen MSFT customers become more concerned about protecting their cloud directories, including Azure AD.

According to Kurtz, this rising threat awareness is creating demand for CRWD's zero-trust products, including those offered as a result of its September 2020 acquisition of Preempt. This acquisition, which is on track for initial integration by the end of Q1, along with its more recent purchase of Humio (Feb. 18, 2021), are expected to become significant contributors this year. Humio will expand CRWD's presence in the $4.9 bln log management market while broadening CRWD's use cases beyond traditional security.

Looking ahead, CRWD is forecasting Q2 revenue of $287-292 mln, equating to yr/yr growth of 62-64%. The company has a track record of easily exceeding its guidance, so this outlook is being viewed as conservative. CRWD's downside EPS guidance of $0.27-0.30 vs. the $0.33 consensus estimate also stands out, but its outlook includes $0.17 in added operating expenses for Humio and higher interest expense for debt. In other words, the guidance doesn't reflect any negative anticipated change in the demand environment or in its operating efficiency.

The most pressing concern we see is the ultra-rich valuation. At ~34x estimated FY22 sales, the stock is priced to perfection. However, we see little reason to believe that the trends and growth catalysts that are fueling its business will subside any time soon. To the contrary, momentum only appears to be building, and its leadership position is solidifying, thereby justifying the premium valuation.

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