CrowdStrike Holdings (CRWD 3.19%) has had a fantastic beginning to 2023. After only 2.5 months of the new year, equities are up over 20% from where they started but still down over 20% from where they were at this time last year. This includes an increase after the business reported financial results for the fiscal year 2023 fourth quarter. (the three months ended January 2023, mostly corresponding to the calendar year 2022).
CrowdStrike’s advice for the next year, on the other hand, was much more important than the last three months. This cybersecurity leader is becoming an even more important player in the industry, and it’s aiming to catch up to Palo Alto Networks and Fortinet in terms of pure-play income. During the bear market, CrowdStrike stock has had a hard time. Is it time to start buying things again?
A great ending to a terrible year
CrowdStrike had a tough business year in 2023. Even though inflation was high and the U.S. Federal Reserve was raising interest rates quickly to try to cool down the economy, the company kept growing quickly. CrowdStrike ended its fiscal year 2023 with $637 million in sales, which was a 48% increase from the previous year. Annualized recurring revenue (ARR), a measure that subscription software-as-a-service businesses use, also grew by 48% and reached $2.56 billion by January 2023.
Using generally accepted accounting standards (GAAP), the net loss for the quarter was $47.5 million, while the net loss for the same quarter last year was $42 million. Free cash flow, which is a measure of adjusted profit, was $210 million, which is up 65% from the year before. Employee stock-based pay, which was $152 million in Q4, was a big part of the difference between the two numbers. In Q4 of the previous year, CrowdStrike gave out $92.6 million in stock-based compensation, so this increase wasn’t exactly good news.
Still, on a per-share basis (which includes the effect of stock-based pay, which dilutes the value of each share), CrowdStrike continues to grow quickly and make money for its shareholders. If free cash flow keeps going up, I think management will start buying back some of the stock to give to owners.
There are no signs that this growth cycle for desktop security will slow down.
Cybersecurity is a long-term growth trend, and endpoint security (for devices, especially those that access an organization’s data and apps afar) is an especially important market in today’s mobile-first world. There is no end in sight to CrowdStrike’s growth by more than 10% every year.
For the fiscal year 2024, management thinks that sales will be between $2.955 billion and $3.015 billion, which means that at the midpoint of the projection, sales will have grown by 33%. CEO George Kurtz and the top team said again that their goal is for ARR to reach $5 billion by the end of the fiscal year 2026 and for the adjusted operating profit margin to reach at least 20% by the end of the fiscal year 2025. The profit margin, after being changed, was 16% last year.
Time to buy this stock at a high price?
After the quarterly report, CrowdStrike is worth 43 times its free cash flow over the past 12 months. It’s a lot “cheaper” now than it has been for most of the time that the company has been on the stock market. While still a premium, this reflects the market’s expectation that the business will succeed in accomplishing its lofty objectives. You should only buy CrowdStrike stock if you think it will keep growing and getting better for a long time after that. Can it do so?
I think that it might. CrowdStrike and other big security software companies have been hearing from customers that they want to consolidate their list of vendors. This is in addition to the fact that cybersecurity will grow in general over the next ten years. When you bundle services, you save money and make it easier to keep an IT business secure. CrowdStrike and its list of tools, which keeps growing, help reach this goal
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On the earnings call, Kurtz revealed that “emerging products” such as identity protection and LogScale contributed 116% growth in annual recurring revenue (ARR) year over year, reaching $339 million by the conclusion of the most recent fiscal year. If these new products can continue to grow, it would be a huge chance for CrowdStrike to grow, and it would also help the company make more money as these new products get better at what they do.
Since the 1980s, the cybersecurity business has been made up of many different companies that focus on different parts of the IT world. Even though I think cyber software will stay scattered, the market is ready for growth and consolidation, and CrowdStrike is in a good place to gain. There are still problems, like rising stock-based pay for employees, but the company has ways to deal with these problems over time. I think it’s time to buy this stock again after a rough year and a half.
