Could Crowdstrike (CRWD) make it into FAANG?

CrowdStrike (CRWD) is a cybersecurity company that provides endpoint and workload protection solutions via its Falcon cloud-based platform. The firm is referred to as the “Salesforce of Security” by the CEO. Crowdstrike has benefited from the ‘work from home’ trend, which has resulted in an increase in endpoint devices and burden on the cloud, making endpoint protection critical. It competes in a highly competitive market, but it has excelled by focusing on continual client acquisition and innovation. CrowdStrike has produced outstanding results and is well-positioned to develop in the market because of its great technology.

CrowdStrike is a bet on the rising need for cloud-based cybersecurity solutions. The company is a global leader in endpoint security solutions, with a growing market share. The capacity of the firm to enroll major clients, cross-sell solutions, develop new product offerings, and grow its worldwide penetration is critical to its success.

CrowdStrike was formed in 2011 by George Kurtz, Dmitri Alperovitch, and Gregg Marston with the goal of developing a cloud computing security solution. They proposed the idea to Warburg Pincus, a private equity firm, and received $25 million in investment. George is still the company’s CEO, although Gregg resigned in 2015 and Dmitri departed in early 2020 to create a non-profit group.

George Kurtz is the company’s founder, president, and CEO. He was Chief Technical Officer of McAfee before starting CrowdStrike. George previously established Foundstone, a security firm that was eventually bought by McAfee in 2004. He has previously held key positions in the cybersecurity area at Ernst & Young and PriceWaterhouseCooper. He graduated from Seton Hall University with a Science in Accounting. As of April 2020, George owned 22.4 percent of the firm.

In February 2020, Michael Sentonas was appointed Chief Technical officer of the business. He was formerly the company’s Vice President of Technology Strategy. Prior to joining CrowdStrike, he served as McAfee’s Chief Technology Officer – Security Connected and Chief Technology and Strategy Officer. He graduated from Edith Cowan University with a bachelor’s degree in computer science (Australia).

Colin Black joined the business in 2015 and then became Chief Operating Officer in 2017. Prior to joining CrowdStrike, he was Chief investing officer of Kratos Defense and Security Solutions, Inc. and Cymer & Mindspeed Technologies, Inc. He graduated from the University of Glasgow with a Science in Electronics Engineering. As of April 2020, all executive officers and directors collectively owned 11% of the firm.

CrowdStrike’s Endpoint Security, IT Operations and Intelligence

Falcon Prevent, Falcon Insights, Falcon Device Control, and Falcon Firewall Management are all modules in this category. These modules aid in the protection against malware and fileless assaults, as well as the real-time visibility and investigation of occurrences at client endpoints and devices. Customers may also use solutions to design, implement, and manage firewall rules and policies.

Falcon OverWatch, Falcon Discover, Falcon Complete, and Falcon Spotlight are modules that handle this section. They assist clients with detecting threats, identifying rogue apps and systems, detecting real-time vulnerability across many endpoints without scanning, and combining endpoint security with repair and response capabilities. In addition, the firm offers application licensing management, Amazon Web Services expenditure analysis, and asset inventory solutions.

Falcon X, Falcon Search Engine, and Falcon Sandbox are among the modules available in this market. These modules aid in the automation of threat analysis, the real-time search for malware, malware analysis, and threat research and reporting.

How does CrowdStrike make money?

Customers are paid monthly fees based on the number of endpoints and cloud modules they utilize while utilizing CrowdStrike’s Falcon platform. Customers are invoiced in advance on an annual or multi-year basis, and the agreements typically last one to three years. Subscription-based revenue accounts for over 92 percent of the company’s revenue, providing great revenue predictability. Professional services, which include malware analysis, incident response, forensic, proactive, and other services, account for the remaining 8%. These are non-recurring and are billed on an hourly or fixed rate basis. The company’s professional services segment assists it in cross-selling its subscription-based products.

CrowdStrike paid $96 million for Preempt Security in September 2020. Preempt is a Zero Trust and restricted access technology supplier that can identify and prevent attacks in real-time based on identification, behavior, and risk. This purchase would enhance the company’s Zero Trust capabilities, which aid in identification and verification, enabling access to only authenticated users. Following the completion of the integration with Preempt, the firm intends to launch a new module on the Falcon platform. The United States accounts for 73% of the company’s sales, Europe, Middle-East and Africa account for 14%, Asia Pacific accounts for 8%, and other areas account for the remaining 5%.

To identify and avoid potential dangers, the firm employs Artificial Intelligence (AI) and machine learning. As more data is available to train AI, the value proposition of the products increases with increased adoption and user base. Over time, this results in a more efficient and effective platform. Furthermore, because of the platform’s cloud-native architecture, security solutions may be installed fast on an endpoint in less than 30 seconds, offering prompt deployment and protection.

According to the company’s presentation, CrowdStrike has a total addressable market of $26.9 billion, which is anticipated to increase at a CAGR of 9% to $31.9 billion by 2022. The business endpoint security industry is worth $8.1 billion. The firm has a market penetration rate of less than 3%, leaving plenty of potential for expansion. The launch of new cloud modules would increase the size of the addressable market.

Current developments

CrowdStrike produced a significant topline performance as well as a bottom-line improvement in Q2 2021. It has benefited from the continuous work-from-home trend and COVID-19 shelter-in-place mandates, which have resulted in increasing workloads on the cloud and a bigger number of endpoints in an enterprise, necessitating the need for enhanced endpoint security. In fact, the business established a program to assist customers in onboarding new remote employees without jeopardizing security.

Overall, it added 969 clients during the quarter, bringing the total number of consumers to 7,230, a 91 percent rise year on year. In Q2 2021, sales were $199 million, up 84 percent year on year, while subscription revenue increased by 89 percent. The subscription was $791M in Q2 2021, up 87 percent year on year. This significant growth was driven by increased client acquisition throughout the quarter, as well as the sale of additional endpoints and modules to existing customers. During the quarter, 33 percent of subscription income came from new clients, while 32 percent came from the sale of additional endpoints and modules to existing customers.

Company competitors

CrowdStrike works in a cutthroat business with a fast-changing technical environment. It competes with VMware Carbon Black, Trend Micro, Fortinet, McAfee Endpoint Security, Microsoft Defender Advanced Threat Protection, Avast Advanced Endpoint Protection, and other endpoint solution providers. It also competes with antivirus solution providers such as McAfee, Kaspersky, Microsoft, and others, as well as network security companies such as Palo Alto Networks and FireEye.

Despite this competitive market, the company’s excellent cloud-based technology has consistently generated significant revenue growth and client acquisition. According to research, it was able to quadruple its market share in the corporate endpoint category, while the market share of the other top three competitors decreased between 2018 and 2019.

CrowdStrike was the first to identify and handle the growing security demands of the cloud age, thus it benefited from being an early entrant in the area. Furthermore, its AI-powered and machine learning-enabled solutions continue to improve in terms of threat identification and breach detection, making the solutions more effective over time. At the moment, it records 3 trillion endpoint-related events every week in real-time.

CrowdStrike’s top-line growth is amazing, but the company is still unprofitable under GAAP. Its net loss increased in fiscal 2020, decreased in fiscal 2021, then almost tripled year over year to $142.4 million in the first half of 2022. This growing deficit may be ascribed to the firm’s recent acquisition of Humio, a cloud-based data logging company, its high stock-based compensation expenditures (which devoured 20% of its sales in the first half of the year), and escalating R&D and marketing expenses.

CrowdStrike’s reliance on stock incentives has increased the number of outstanding shares since its IPO, and continuous dilution may keep its values from dropping. On the plus side, CrowdStrike’s non-GAAP earnings, which remove stock-based compensation and other one-time expenditures, continue to improve. It reached non-GAAP profitability in fiscal 2021 and aims to raise non-GAAP net income by 64 percent to 86 percent this year.

This article was written by u/PartTimeAnalyst1.

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