Our next purchase -- CrowdStrike $CRWD
@brianferoldi and I switch off every week picking the stock we'll be putting real money into. This week was my turn. I chose one of my highest-conviction (and currently my largest) holdings: CrowdStrike $CRWD
For starters: this is as mission-driven of a company as you'll ever find.
That shows the company has 22 tools and an App Store currently. When it went public less than three years ago, it had half as many. That underscores the optionality baked into CrowdStrike's business model.
While customer acquisition costs are high, we believe the moat around the company is wide enough that it justifies the spending.
The network effect is enhanced because the more customers $CRWD has, the better its' system is. When one user has a unique breach detected, all other current users receive (relatively quickly) a form of immunity. More users = better protection.
But not only that, the number of customers adopting MULTIPLE TOOLS has gone through the roof -- adding to switching costs.
While not "profitable" on a GAAP basis, this is a free cash flow machine with a stellar balance sheet.
We love the founder-led management team that gets great reviews and has lots of skin in the game
But it's worth acknowledging the biggest risks. Over the short-term: dilution and valuation. Over the long-term: competition and the risk of being hacked.
Looking ahead, this is where we'll be focusing our attention
All in all, it's one of the highest scoring companies on both of our frameworks
But what do YOU think of CrowdStrike: both the company and the stock?
73%A great company to buy today
26%Great..but stock too expensive
69 VotesPoll ended on: 06/23/22
Alphabet (Google) invested in Crowdstrike's series C funding round in 2015 and I remember reading an article about how this Google backed company would be a huge success around the IPO in 2019.
I still believe this company will be a huge success and glad the Brian's made it their pick this week. I will be investing another 100 dollars tomorrow.
Great work again!
Do you and Brian create these charts on your own? Or are you finding them somewhere? Also, do you have a higher conviction of CRWD over PANW? If so, why?
@coates23 Hey Charles, personally I'd choose $CRWD over $PANW. Palo Alto, at 9.0x sales, is definitely less expensive than Crowdstrike (16.0x sales) but Palo Alto isn't growing as fast as Crowdstrike. Palo Alto expects revenue in fiscal '23 to grow 29% YoY while Crowdstrike expects fiscal '23 revenue to grow in the area of 48% YoY. Hope that helps!
CrowdStrike is an excellent business, that I don't own because the valuation is still rich. I recently ran it through my SaaS investment checklist
- Retention rates
- Multi-product customers
- Number of modules
- Rule of 40
and here are the results:
TAM: Fast and growing, Crowdstrike is also taking an increasing share of the market.
Retention rates look stellar, consistently above 120% net retention, but the gross retention is even more impressive. 97-98% gross retention means a churn rate around 2-3%. If we inverse that it means the average customer is staying for 33-50 years!
Multiproduct: Crowdstrike had great success growing module adoption, with all of these categories growing fast.
Number of modules is also growing, from 9 modules in 4 sections at IPO(2019) to 23 modules in 9 sections in Q4 22.
The rule of 40 is also great: Stellar revenue growth of 63% with 29% FCF margin, 10% FCF margin if we subtract SBC and a -16% Net income margin. No matter which of these you take you stay above 40. A lot of growth stocks love to hide costs in excessive SBC, but Crowdstrike remains healthy even substracting that.
The valuation is still stretched around 20+ times forward sales, but I'll keep watching this great company.