CrowdStrike Holdings (Ticker: CRWD) - Brief Breakdown
In my Brief Breakdowns,I pick a stock and present opposite sides – I present the bullish argument and the bearish argument.
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Company Description and Qualitative Analysis
CrowdStrike Holdings is a cloud-based protection service that operates across endpoints and cloud workloads, specializing in protecting identities and data. CrowdStrike offers managed security services, IT operations management, threat hunting, Zero Trust identity protection and log management. In a growing digital world, IT and cloud-based protection services are a necessity. The more that goes digital, the more need for companies like CrowdStrike. CrowdStrike is the largest IT/cybersecurity company by market cap and seems primed for continued growth in a growing digital world. CrowdStrike has over 16 thousand subscribers and 69% of those subscribers have been with the CRWD for 4 years+. Annual recurring revenue was $1.73 billion and in a market estimated to grow to $217.7 billion in 2023.
Quantitative Analysis
At the time of this writing (5/30/2022), CRWD is trading at $166.82 with a 52 week range of $130.00 - $298.48 and a market cap of $38.71B. In Q4 of 2021 CrowdStrike saw a 65% ARR YoY growth and operating margin is -9.82%. Return of equity (ROE: Net Income / Total Equity *100) of CRWD is -25.09% and net margin (net income / revenue) is -16.16%. The price to earnings (price per share / earnings per share) ratio was -163.34 and the debt to equities ratio (total liabilities / total equity) is 2.49. This financial analysis was done using financialstockdata.com (sign up using our promo code GCI to get the first month of the premium tool FREE here). You can view CRWD’s Q4 2021 earnings here and their 2021 Annual Report here.
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Bullish Thesis
Here are three points to support the bullish thesis updates:
Client Retention: As stated above, 69% of CrowdStrike’s subscribers have used their services for four years or more. This is a large number of their revenue and it shows that when a customer or company uses the CrowdStrike cybersecurity product, the consumers are satisfied with the result. As CrowdStrike is able to obtain more customers, they will look to continue this trend to limit the amount of turnover for consumers.
Recurring Revenue: Cybersecurity is based on a monthly or yearly payment plan. Consumers will only purchase their plan and pay for CrowdStrikes to serve regularly so essentially consumers could use the same product as long as they have something connected to the internet. More smart devices are coming online and internet is seemingly a requirement for everyday life at this point. More companies and people in general are going online and this recurring revenue (expense for consumers) will become a norm if it is not already.
Biggest Fish in Growing Market: CrowdStrike has the largest market cap of any cybersecurity company. As stated above and in my cybersecurity overview (which you can find here), this sector is rapidly growing. With more clients and a being one of, if not the biggest name in the industry should bode well for CrowdStrike. CEOs and other C-suite executives are connected in some way shape or form and the more potential clients there are the more recommendations CRWD will get if consumers are satisfied. As stated in the first bull argument, client retention would point to consumers being satisfied therefore CrowdStrike looks primed to gobble up some more market share.
Bearish Thesis
Here are three points to support the bearish thesis:
Reliance on Subscription Revenue: This point is somewhat similar to the single product bearish argument below, but anticipated revenue comes from subscription models and retention. If someone is subject to a major hack due to CrowdStrike’s cybersecurity system, other consumers not affected by the hack may jump ship as well. This would cause CrowdStrike to lose not only consumers and take a hit to their reputation but would also take a major hit to their revenue.
Single Product: As a single product company, I believe there is a major risk if that one product does not fare well or if there are some issues with that product. Similar to the issue stated above, if there is a hack that proves CrowdStrikes cybersecurity to not be as effective as advertised this product will be null and void. If the product is not null and void, at the very least it will need upgrading which can take time and money. I think its best for small companies to perfect one aspect then diversify products in order to not lose money as quickly or have a heavy reliance on one product, so I will be looking to see if there is anything in the works for CrowdStrike as far as new products go.
Losing Money: As many growth type companies, CrowdStrike has never really made any money. CRWD is part of the group of companies that have never needed to turn a profit as of yet. Easy access to capital has allowed companies to rapidly shoot up in stock price and in revenue but as we come closer to a recession, it is likely the access to capital will become more difficult. With the limited amount of capital, I believe growth companies are going to be in for a rude awakening. Hopefully for companies like CrowdStrike which offer a product that is somewhat of a necessity that will not be the case, but time will tell.
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Brandon
Disclosure: The article was written by Brandon Keys, and it expresses the author's own opinions. I am not receiving compensation for it. I have no business relationships with any company whose stock is mentioned in this article. The information presented in this article is for informational purposes only and in no way should be construed as financial advice or recommendation to buy or sell any stock. Brandon is not a financial advisor. I encourage all readers to do further research and do your own due diligence before making any investments.