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2021-12-21

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CrowdStrike: Buying The Dip, Here Is Why

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{"i18n":{"language":"zh_CN"},"detailType":1,"isChannel":false,"data":{"magic":2,"id":693795723,"tweetId":"693795723","gmtCreate":1640075457039,"gmtModify":1640075457039,"author":{"id":3572841098185467,"idStr":"3572841098185467","authorId":3572841098185467,"authorIdStr":"3572841098185467","name":"Chloe26","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":5,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body>Good</body></html>","htmlText":"<html><head></head><body>Good</body></html>","text":"Good","highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":1,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/693795723","repostId":1107624786,"repostType":4,"repost":{"id":"1107624786","kind":"news","pubTimestamp":1640073090,"share":"https://www.laohu8.com/m/news/1107624786?lang=&edition=full","pubTime":"2021-12-21 15:51","market":"us","language":"en","title":"CrowdStrike: Buying The Dip, Here Is Why","url":"https://stock-news.laohu8.com/highlight/detail?id=1107624786","media":"Seeking Alpha","summary":"Summary\n\nCrowdStrike is an expensive stock for a reason and the recent pull-back offers an opportune","content":"Summary\n<ul>\n <li>CrowdStrike is an expensive stock for a reason and the recent pull-back offers an opportune moment to initiate a position in this industry winner.</li>\n <li>Incredibly ability to retain customers and drive growth within its existing customer base are strong signs of a positive future for CrowdStrike.</li>\n <li>A founder-led company taking its point of departure in what the legacy providers weren't capable of.</li>\n <li>Trading 30% down from previous high something it hasn't done since the Covid-19 market crash.</li>\n <li>Q3-22 was yet another impressive quarter with strong top-line growth and positive free cash flow.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/22956bf83da56565ef9e9e736d7927a5\" tg-width=\"1536\" tg-height=\"922\" width=\"100%\" height=\"auto\">Eoneren/E+ via Getty Images\nCrowdStrike Holdings Inc. (CRWD) is currently trading 30% off its 52-week high at a P/S ratio of 35.9, the cheapest it has been since the end of 2020. Does that indicate it's a bargain, no it doesn't, but quality comes at a price and given a closer look at how management has executed and with the outlook in mind, I believe that CrowdStrike is an appealing opportunity at the current levels. That doesn't take away the fact, that I'd be careful whenever I'm about to invest in a company trading at such extreme valuations as given the P/S example, but sometimes, an exception can be made from my standpoint.\nCrowdStrike offers a range of simple but efficient cybersecurity solutions anchored in the cloud in order to prevent breaches on the customer end. The solutions offered by the company rests on an AI that gets increasingly more intelligent as it identifies and deals with threats. In the words of the company itself, the AI gets smarter as it consumes more data. A few years ago, they managed a trillion 'signals' a week, which has now grown to a trillion a day, meaning the rate of data available is growing significantly.\nAs will become evident later on in this article, the company has proven extremely capable of customer retention proving the value of its services and also a strong up-selling ability as given by its dollar-based retention rates.\nThe company is co-founded by former Chief Technology Officer at McAfee and current CEO of CrowdStrike, George Kurtz, who recognized the lacking abilities of on-premises legacy players and the gap that allowed for a pure play cybersecurity cloud-based solution. He co-founded the company together with Dmitri Alperovitch who became Chief Technology Officer in CrowdStrike coming from a position of heading up threat research at McAfee. He has since then left his position, with the current CTOMichael Sentonas, also having been a leading executive at McAfee and holding more than 20 years' experience within cybersecurity.\nIf we ask ourselves why cybersecurity matters in the 21st century, just take one look at the world's largest container shipping company, A.P. Møller-Mærsk A/S (OTCPK:AMKBY), who according to the Wired magazine, suffered the most devastating cyberattack in history back in 2017, ultimately coming in at an estimatedlossof $300 million. We could add election interference and government sponsored cyber threats on top, suggesting that this is a highly prioritized area for both public and private institutions, giving strong signs of industry growth.\nAs far as I can see, there is a lot to like about this company and by the end of this decade I don't think it mattered whether one paid $175 or $225 per share, but whether one owned shares to begin with. I've wanted to initiate a position for a long time but waited for a pullback as other companies were trading more favorably. However, the current pullback allowed for initiating a position on December 13th at $209 per share. A position I intend to expand by dollar cost averaging.\nCrowdStrike's Business Model And Industry Position\nCrowdStrike has consistently been recognized by Gartner as an EPP (End Point Protection) leader with the most recent publication in 2021. The visual overlook given in the research document isn't immediately free of charge, but the same ranking for 2019 is shown below, to provide a taste of how this industry can be categorized.\n<img src=\"https://static.tigerbbs.com/573a46128009538f9c3c494900deb212\" tg-width=\"640\" tg-height=\"697\" width=\"100%\" height=\"auto\">\nOne of the reasons it's marked as a leader comes down to completeness and effectiveness of its vision, to provide a customer solution that isn't characterized by high costs, complexity and ineffectiveness. The very issues that the company itself identifies with legacy players.\n<img src=\"https://static.tigerbbs.com/3ec4d8f5d820dbe401d7ffd02df7f559\" tg-width=\"640\" tg-height=\"355\" width=\"100%\" height=\"auto\">Corporate Overview 2021, p. 8.\nCrowdStrike believes their product is apart from the rest by the nature of its cloud solution allowing for data access, giving constant protection, continuous learning and re-use of those learnings within its AI.\n<ul>\n <li>When a customer suffers a breach, that customer is made aware, and the data immediately digested within CrowdStrike's AI brain, known as Falcon and in this instance labelled \"The Threat Graph\". The breach is analyzed, and all other customers known to the cloud receives an update to detect and avoid a similar threat.</li>\n</ul>\nHerein also lies an important observation to the thesis underlying CrowdStrike over time. As the AI becomes smarter it strengthens its resilience towards cyber related threats but also makes it increasingly difficult for new entrants to match the services provided by CrowdStrike. On top is the network effect, suggesting the value proposition strengthens over time, as every new customer gives more value to the software and ecosystem.\n<img src=\"https://static.tigerbbs.com/909a2c51271cf6f1f889ee2333b6626a\" tg-width=\"640\" tg-height=\"357\" width=\"100%\" height=\"auto\">Corporate Overview 2021, p. 12.\nThe Business\nCrowdStrike is building the business around a SaaS (subscription as a service) model, something which many legacy players would like to adopt, and which gives management strong forward visibility. Here follows a few stats for CrowdStrike to set the stage and understand its current size and operation.\n<img src=\"https://static.tigerbbs.com/412c8775ec1bd442c072ef95d3a5777a\" tg-width=\"640\" tg-height=\"356\" width=\"100%\" height=\"auto\">Corporate Overview 2021, p. 6.\nAs evident, growth is strong across the panel, supported by the vision of a business model promising much less friction for the customer. The company itself has labelled this a low friction go-to market strategy with ease of use when it comes to onboarding. And as you will see in a minute, once you become a customer of CrowdStrike, the chance you leave is slim.\n<ul>\n <li>14.687 subscription customers as of Q3-22 (+74% Y/Y)</li>\n <li>Annual Recurring Revenue $1.51 billion (+67% Y/Y)</li>\n <li>63 of the Fortune 100 as current customers</li>\n <li>14 of the top 20 banks</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/8d2d5f146b3e308cc0abf384378bd392\" tg-width=\"640\" tg-height=\"358\" width=\"100%\" height=\"auto\">Corporate Overview 2021, p. 28.\nLooking at the growth of ARR over the years, it's evident the company is doing something that customers value. Speaking of the customers, here is one of the strongest selling points for why CrowdStrike could be a winner for this decade and within its industry.\n<ul>\n <li>Dollar-Based Retention Rate: showing how much revenue the company makes from its existing customer base over time. For the past 13 quarters, the company has exceeded a dollar-based retention rate of 120% suggesting that customers are pleased with the service they are procuring, to the point where they spend more money with CrowdStrike over time. A strong sign of customer satisfaction.</li>\n <li>Gross retention: Showing the number of customers the company manages to keep on its books as time passes, with the best possible outcome being 100%, which of course is an unrealistic achievement given some customers come and go, other go out of business etc. Gross retention is at 98% and has been in that ballpark for 14 quarters in a row - extremely impressive.</li>\n</ul>\nIn other words, customer stay, and they allocate more spending with CrowdStrike over time, two incredibly strong selling points for why this company should have a bright future, and also why we as potential shareholders consistently have to pay a premium if we want in.\n<img src=\"https://static.tigerbbs.com/3c454fe97b9f6fee141600816ffa29f3\" tg-width=\"640\" tg-height=\"360\" width=\"100%\" height=\"auto\">Corporate Overview 2021, p. 30.\nA closer look at the customer base, and unsurprisingly, it has been growing massively in recent years.\n<img src=\"https://static.tigerbbs.com/88973b4df7dcd2644e4c4652e4f79942\" tg-width=\"640\" tg-height=\"357\" width=\"100%\" height=\"auto\">Corporate Overview 2021, p. 18.\nWith a TTM revenue of $1.28 billion, the company still has a significant runway when considering their estimated total addressable market. We of course need to maintain a sense of skepticism, given these numbers are company estimates, but it does illustrate the opportunities ahead. Given the examples I provided in the beginning of both public and private institutions being affected by cyber threats, then it is fair to say this marketplace will continue to expand throughout this decade. CrowdStrike estimates an 11% CAGR from 2022 to 2024 while currently growing much faster, which should remind us that CrowdStrike's growth will slow down at one point.\nObserving the TAM slide below, for those who we have followed the company for some time, you will have seen the number of services widen, as the company has expanded its platform and focus areas. Something that naturally add additional potential revenue to the pie for each new successful initiative.\n<img src=\"https://static.tigerbbs.com/946272438a584bf1aea8ddfd4594024c\" tg-width=\"640\" tg-height=\"358\" width=\"100%\" height=\"auto\">Corporate Overview 2021, p. 22.\nThere is some uncertainty to how this marketplace could develop, but CrowdStrike has already addressed my skepticism, suggesting that companies in general still aren't allocating sufficient funds within their IT budgets to deal with the potential cyber threats out there. As with most other things, we probably need to see someone \"fall\" on the playground before the rest begin wearing protective gear. As such, we can decide to view the TAM estimates as both conservative or optimistic. Whenever I consider TAM estimates, I often prefer the conservative understanding of how a market could develop as to not be carried away by how the future could look like. In my own opinion, humans often adopt changes slower than what comes across in headlines. Just take the example of society wide adoption of automated driving, something that has been touted for a long time, yet we remain far away due to legislation in combination with other roadblocks. The strongest indicator for a bright future for CrowdStrike lies within its performance on gross retention and dollar-based retention rates.\n<img src=\"https://static.tigerbbs.com/9d5fefcda5ca9e722ca3426a0a8f9502\" tg-width=\"640\" tg-height=\"358\" width=\"100%\" height=\"auto\">Corporate Overview 2021, p. 24.\nShow Me The Money\nAs a high growth company, management must strike the balance of not over- or underspend on marketing and sales efforts to drive an expansion in revenue. The company reports on these efforts quarterly, and at the&nbsp;most recent quarter, CrowdStrike secured themselves $1.3 dollar in revenue for every dollar spend on sales and marketing efforts, while also securing a 77% performance when it comes to the \"rule of 40\", a typical metric used to gauge the health of a SaaS company. As given by its name, if you exceed 40 (combining growth and profit rates), then the business is in good health. As with any other metric, it shouldn't be allowed to speak on its own, but it does show that CrowdStrike is doing well. Basically, when seeing this metric, it allows one to understand if the company is striking the balance in terms of growing at a sustainable rate. In this case, CrowdStrike is growing immensely while having showed improved profitability in recent years.\n<img src=\"https://static.tigerbbs.com/d7d272cba74422da924ed37351999ae4\" tg-width=\"640\" tg-height=\"360\" width=\"100%\" height=\"auto\">Corporate Overview 2021, p. 34.\nThere are clear signs of strong operating leverage if one observes the journey above with the gross margin being almost at where management would like in the long term.\n<ul>\n <li>S&amp;M costs has dwindled from 101% of revenue in FY17 to 37% by this quarter</li>\n <li>R&amp;D costs has dwindled from 73% of revenue in FY17 to 18% by this quarter</li>\n <li>G&amp;A costs has dwindled from 30% of revenue in FY17 to 8% by this quarter</li>\n</ul>\nThe target operating model (Non-GAAP) set by management shows the following drill down of its profit statement\n<ul>\n <li>Gross Margin (currently at 76%) to continue to rise toward 80%+</li>\n <li>S&amp;M costs to fall towards 30-35%.</li>\n <li>R&amp;D costs to settle between 15-20%.</li>\n <li>G&amp;A costs to settle between 7-9%.</li>\n <li>As a result, Operating margin should rise beyond 20%</li>\n <li>Free cash flow margin of 30%+</li>\n</ul>\nI can't argue with the fact, that management has secured CrowdStrike is moving in the right direction to achieve its target operating model, meaning that I won't try to deny, that CrowdStrike could become a very profitable business.\nIn that regard, it's also interesting to observe how the free cash flow has trended, while CrowdStrike currently holds $1.9 billion of cash and cash equivalents on its balance sheet. Cash that can be utilized to secure organic growth or bolt-on acquisitions.\n<img src=\"https://static.tigerbbs.com/201ce099da8656661e8197f14d990c80\" tg-width=\"635\" tg-height=\"417\" width=\"100%\" height=\"auto\">Data by YCharts\nIf I were to summarize this section, I'd highlight management's ability to drive continuous improvements within its operating structure, to the point where its target operating model isn't too far away. All of this while securing its \"rule of 40\" number comes in at 77%, quite impressive. Holding more cash than debt on its balance, the company is well padded to meet its future, while still growing immensely.\nThe Outlook &amp; Valuation\nNothing of what I've covered here is hidden to Wall Street, which also means that we must accept a premium price, more on that in a minute.\nAccording&nbsp;to 29 analysts following CrowdStrike, 19 of those are very bullish on the company, the highest amount and percentage in terms of distribution in the last three years. Their current average price target for the stock comes in at $293 per share, suggesting a 40% upside from the price today. Such targets don't make promises, but it gives an indication, that the stock could be at a relative bargain compared to how it has fared recently.\n<img src=\"https://static.tigerbbs.com/0b71928d037a3feeb3a532d90a47910f\" tg-width=\"640\" tg-height=\"108\" width=\"100%\" height=\"auto\">\nThose same analysts also provide forecasts related to both top- and bottom-line, with the revenue outlook expected to maintain its strong growth. By the end of FY24, the company would (if the price remained stable) still be trading at a P/S of 17.8, with Apple Inc. (AAPL) and Alphabet Inc. (GOOGL) both trading at around 8 just for comparison. I don't find those growth expectations unrealistic given what I've uncovered already so far, but no one can know for certain how the situation will look like in two years. Should CrowdStrike also manage to achieve the consensus EPS expectations from the same analyst group, then the company would still trade at a P/E of 146 by FY24.\nIf I were to try and understand where the current valuation is coming from, then I'd highlight that the company has grown its revenue by 2.400% since FY17 until now (The company went public in June 2019). Growing from a small base is more accommodating, but so far, the company hasn't shown evidence that it is about to slow down.\n<img src=\"https://static.tigerbbs.com/c3564c72394432b565260261e1b7f951\" tg-width=\"635\" tg-height=\"433\" width=\"100%\" height=\"auto\">Data by YCharts\nThe company currently trades at an EV to revenue of 35.7, roughly the same as when the company went public, only difference being it has grown massively since then. If we observe the same picture but measured in percentage growth, we see the massive returns for shareholders. In fact, it is trading slightly lower than during its IPO when measured on EV to revenue, but shareholders have been rewarded richly due to the very strong revenue growth. As such, the growing share price hasn't been driven by an expansion in its multiples, but by the strong operational execution conducted by the company. Again, make no mistake, an EV/Revenue multiple of 35.7 is&nbsp;very high&nbsp;but by far not the highest it has been trading at since its IPO and as evident from its historical performance, also a level that can create shareholder value. In other words, the performance of the stock, is following the fundamentals of the company.\n<img src=\"https://static.tigerbbs.com/e491308b358f0808edce26c8f5a3af64\" tg-width=\"635\" tg-height=\"433\" width=\"100%\" height=\"auto\">Data by YCharts\nA Few Thoughts On Risk\nWhenever a company trades at such multiples, there is very limited room for failure on especially top-line performance. A slight miss on revenue growth, or communication suggesting unclarity concerning coming quarters, or a guidance that is below analyst consensus estimates, any of those reasons can cause a significant downwards movement in the share price. Whenever that happens, it often requires a series of strong quarters and solid management communication for the street to regain confidence in the company.\nTwo companies who have fallen from similarly high levels during 2021 are DocuSign Inc. (DOCU) and Pinterest Inc. (PINS). DocuSign due to weak revenue expectations and Pinterest due to uncertainty concerning the outlook for MAU (Monthly Active User) growth. Both of those companies were trading at above P/S ratios of 30 earlier this year, with CrowdStrike currently trading at DocuSign's peak from earlier this summer. Point being, the situation can change drastically in a very short time frame, and taking the example of Pinterest, management still hasn't managed to calm the investment community as evident by its continuous slip since uncertainty manifested itself. As such, both companies are down more than 30% YTD.\n<img src=\"https://static.tigerbbs.com/e49c64ea83323eaf94baf50118c8243e\" tg-width=\"635\" tg-height=\"450\" width=\"100%\" height=\"auto\">Data by YCharts\nThe most common cause for concern, would be competition or that management has misunderstood how the market will develop, resulting in having to adjust expectations downwards. As shown in Gartner's quadrant earlier on in this article, the cybersecurity arena is a competitive one. Some of its characteristics is shifting technology and frequently changing products in an era where digitalization is undergoing rapid change.\nWith a market that is still fragmented, a changing competitive landscape could be the result of partnerships, acquisitions, or technological advancements. As mentioned, I see great value in the AI model of CrowdStrike combined with the network effects, but a significant technological advancement can't be predicted but could lay waste to CrowdStrike's future. As investors, it is paramount that we invest with open eyes, accepting that we face risks, especially in the situation of a high growth company still to reach its target operating model.\nConclusion\nI'm a long-term investor, willing to hold onto my positions for years, waiting for them to unfold and tell their true story. In the case of CrowdStrike, we are dealing with a company with a hefty price tag no matter the valuation metric put to use, but also a company where the fundamentals have moved up and to the right at a blazing pace. Immense growth, strong development in its operating model and no signs of slowing down while having asserted its place in the cybersecurity industry combined with great network effects build into its service offering. CrowdStrike has what I look for in an industry winner, and I've initiated a position earlier in December, a position I plan on expanding as time goes by. I find that the recent pull-back offers some cushion in terms of downside pricing risks, but also want to underline that it still trades at very high multiples. Given my appetite for risk and the fact that similar high-flying growth companies have been put into the dust during 2021, I initiate a small position of 1-2% of my portfolio, with the willingness to grow it via dollar cost averaging. I do however believe, that when I look back at my investment in several years from now, that this company could be a market beater and that it mattered more that I held shares in the company than whether I initiated my position at $175 or $225 a share. Impressive gross retention of customers and a very impressive dollar-based retention rate tell me, that this company has managed to create a platform of services, which customers value highly and on top comes management continuous efforts towards expanding CrowdStrike's capabilities allowing for a growing total addressable market.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>CrowdStrike: Buying The Dip, Here Is Why</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nCrowdStrike: Buying The Dip, Here Is Why\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-12-21 15:51 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4476074-crowdstrike-buying-the-dip-here-is-why>Seeking Alpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCrowdStrike is an expensive stock for a reason and the recent pull-back offers an opportune moment to initiate a position in this industry winner.\nIncredibly ability to retain customers and ...\n\n<a href=\"https://seekingalpha.com/article/4476074-crowdstrike-buying-the-dip-here-is-why\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"CRWD":"CrowdStrike Holdings, Inc."},"source_url":"https://seekingalpha.com/article/4476074-crowdstrike-buying-the-dip-here-is-why","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1107624786","content_text":"Summary\n\nCrowdStrike is an expensive stock for a reason and the recent pull-back offers an opportune moment to initiate a position in this industry winner.\nIncredibly ability to retain customers and drive growth within its existing customer base are strong signs of a positive future for CrowdStrike.\nA founder-led company taking its point of departure in what the legacy providers weren't capable of.\nTrading 30% down from previous high something it hasn't done since the Covid-19 market crash.\nQ3-22 was yet another impressive quarter with strong top-line growth and positive free cash flow.\n\nEoneren/E+ via Getty Images\nCrowdStrike Holdings Inc. (CRWD) is currently trading 30% off its 52-week high at a P/S ratio of 35.9, the cheapest it has been since the end of 2020. Does that indicate it's a bargain, no it doesn't, but quality comes at a price and given a closer look at how management has executed and with the outlook in mind, I believe that CrowdStrike is an appealing opportunity at the current levels. That doesn't take away the fact, that I'd be careful whenever I'm about to invest in a company trading at such extreme valuations as given the P/S example, but sometimes, an exception can be made from my standpoint.\nCrowdStrike offers a range of simple but efficient cybersecurity solutions anchored in the cloud in order to prevent breaches on the customer end. The solutions offered by the company rests on an AI that gets increasingly more intelligent as it identifies and deals with threats. In the words of the company itself, the AI gets smarter as it consumes more data. A few years ago, they managed a trillion 'signals' a week, which has now grown to a trillion a day, meaning the rate of data available is growing significantly.\nAs will become evident later on in this article, the company has proven extremely capable of customer retention proving the value of its services and also a strong up-selling ability as given by its dollar-based retention rates.\nThe company is co-founded by former Chief Technology Officer at McAfee and current CEO of CrowdStrike, George Kurtz, who recognized the lacking abilities of on-premises legacy players and the gap that allowed for a pure play cybersecurity cloud-based solution. He co-founded the company together with Dmitri Alperovitch who became Chief Technology Officer in CrowdStrike coming from a position of heading up threat research at McAfee. He has since then left his position, with the current CTOMichael Sentonas, also having been a leading executive at McAfee and holding more than 20 years' experience within cybersecurity.\nIf we ask ourselves why cybersecurity matters in the 21st century, just take one look at the world's largest container shipping company, A.P. Møller-Mærsk A/S (OTCPK:AMKBY), who according to the Wired magazine, suffered the most devastating cyberattack in history back in 2017, ultimately coming in at an estimatedlossof $300 million. We could add election interference and government sponsored cyber threats on top, suggesting that this is a highly prioritized area for both public and private institutions, giving strong signs of industry growth.\nAs far as I can see, there is a lot to like about this company and by the end of this decade I don't think it mattered whether one paid $175 or $225 per share, but whether one owned shares to begin with. I've wanted to initiate a position for a long time but waited for a pullback as other companies were trading more favorably. However, the current pullback allowed for initiating a position on December 13th at $209 per share. A position I intend to expand by dollar cost averaging.\nCrowdStrike's Business Model And Industry Position\nCrowdStrike has consistently been recognized by Gartner as an EPP (End Point Protection) leader with the most recent publication in 2021. The visual overlook given in the research document isn't immediately free of charge, but the same ranking for 2019 is shown below, to provide a taste of how this industry can be categorized.\n\nOne of the reasons it's marked as a leader comes down to completeness and effectiveness of its vision, to provide a customer solution that isn't characterized by high costs, complexity and ineffectiveness. The very issues that the company itself identifies with legacy players.\nCorporate Overview 2021, p. 8.\nCrowdStrike believes their product is apart from the rest by the nature of its cloud solution allowing for data access, giving constant protection, continuous learning and re-use of those learnings within its AI.\n\nWhen a customer suffers a breach, that customer is made aware, and the data immediately digested within CrowdStrike's AI brain, known as Falcon and in this instance labelled \"The Threat Graph\". The breach is analyzed, and all other customers known to the cloud receives an update to detect and avoid a similar threat.\n\nHerein also lies an important observation to the thesis underlying CrowdStrike over time. As the AI becomes smarter it strengthens its resilience towards cyber related threats but also makes it increasingly difficult for new entrants to match the services provided by CrowdStrike. On top is the network effect, suggesting the value proposition strengthens over time, as every new customer gives more value to the software and ecosystem.\nCorporate Overview 2021, p. 12.\nThe Business\nCrowdStrike is building the business around a SaaS (subscription as a service) model, something which many legacy players would like to adopt, and which gives management strong forward visibility. Here follows a few stats for CrowdStrike to set the stage and understand its current size and operation.\nCorporate Overview 2021, p. 6.\nAs evident, growth is strong across the panel, supported by the vision of a business model promising much less friction for the customer. The company itself has labelled this a low friction go-to market strategy with ease of use when it comes to onboarding. And as you will see in a minute, once you become a customer of CrowdStrike, the chance you leave is slim.\n\n14.687 subscription customers as of Q3-22 (+74% Y/Y)\nAnnual Recurring Revenue $1.51 billion (+67% Y/Y)\n63 of the Fortune 100 as current customers\n14 of the top 20 banks\n\nCorporate Overview 2021, p. 28.\nLooking at the growth of ARR over the years, it's evident the company is doing something that customers value. Speaking of the customers, here is one of the strongest selling points for why CrowdStrike could be a winner for this decade and within its industry.\n\nDollar-Based Retention Rate: showing how much revenue the company makes from its existing customer base over time. For the past 13 quarters, the company has exceeded a dollar-based retention rate of 120% suggesting that customers are pleased with the service they are procuring, to the point where they spend more money with CrowdStrike over time. A strong sign of customer satisfaction.\nGross retention: Showing the number of customers the company manages to keep on its books as time passes, with the best possible outcome being 100%, which of course is an unrealistic achievement given some customers come and go, other go out of business etc. Gross retention is at 98% and has been in that ballpark for 14 quarters in a row - extremely impressive.\n\nIn other words, customer stay, and they allocate more spending with CrowdStrike over time, two incredibly strong selling points for why this company should have a bright future, and also why we as potential shareholders consistently have to pay a premium if we want in.\nCorporate Overview 2021, p. 30.\nA closer look at the customer base, and unsurprisingly, it has been growing massively in recent years.\nCorporate Overview 2021, p. 18.\nWith a TTM revenue of $1.28 billion, the company still has a significant runway when considering their estimated total addressable market. We of course need to maintain a sense of skepticism, given these numbers are company estimates, but it does illustrate the opportunities ahead. Given the examples I provided in the beginning of both public and private institutions being affected by cyber threats, then it is fair to say this marketplace will continue to expand throughout this decade. CrowdStrike estimates an 11% CAGR from 2022 to 2024 while currently growing much faster, which should remind us that CrowdStrike's growth will slow down at one point.\nObserving the TAM slide below, for those who we have followed the company for some time, you will have seen the number of services widen, as the company has expanded its platform and focus areas. Something that naturally add additional potential revenue to the pie for each new successful initiative.\nCorporate Overview 2021, p. 22.\nThere is some uncertainty to how this marketplace could develop, but CrowdStrike has already addressed my skepticism, suggesting that companies in general still aren't allocating sufficient funds within their IT budgets to deal with the potential cyber threats out there. As with most other things, we probably need to see someone \"fall\" on the playground before the rest begin wearing protective gear. As such, we can decide to view the TAM estimates as both conservative or optimistic. Whenever I consider TAM estimates, I often prefer the conservative understanding of how a market could develop as to not be carried away by how the future could look like. In my own opinion, humans often adopt changes slower than what comes across in headlines. Just take the example of society wide adoption of automated driving, something that has been touted for a long time, yet we remain far away due to legislation in combination with other roadblocks. The strongest indicator for a bright future for CrowdStrike lies within its performance on gross retention and dollar-based retention rates.\nCorporate Overview 2021, p. 24.\nShow Me The Money\nAs a high growth company, management must strike the balance of not over- or underspend on marketing and sales efforts to drive an expansion in revenue. The company reports on these efforts quarterly, and at the most recent quarter, CrowdStrike secured themselves $1.3 dollar in revenue for every dollar spend on sales and marketing efforts, while also securing a 77% performance when it comes to the \"rule of 40\", a typical metric used to gauge the health of a SaaS company. As given by its name, if you exceed 40 (combining growth and profit rates), then the business is in good health. As with any other metric, it shouldn't be allowed to speak on its own, but it does show that CrowdStrike is doing well. Basically, when seeing this metric, it allows one to understand if the company is striking the balance in terms of growing at a sustainable rate. In this case, CrowdStrike is growing immensely while having showed improved profitability in recent years.\nCorporate Overview 2021, p. 34.\nThere are clear signs of strong operating leverage if one observes the journey above with the gross margin being almost at where management would like in the long term.\n\nS&M costs has dwindled from 101% of revenue in FY17 to 37% by this quarter\nR&D costs has dwindled from 73% of revenue in FY17 to 18% by this quarter\nG&A costs has dwindled from 30% of revenue in FY17 to 8% by this quarter\n\nThe target operating model (Non-GAAP) set by management shows the following drill down of its profit statement\n\nGross Margin (currently at 76%) to continue to rise toward 80%+\nS&M costs to fall towards 30-35%.\nR&D costs to settle between 15-20%.\nG&A costs to settle between 7-9%.\nAs a result, Operating margin should rise beyond 20%\nFree cash flow margin of 30%+\n\nI can't argue with the fact, that management has secured CrowdStrike is moving in the right direction to achieve its target operating model, meaning that I won't try to deny, that CrowdStrike could become a very profitable business.\nIn that regard, it's also interesting to observe how the free cash flow has trended, while CrowdStrike currently holds $1.9 billion of cash and cash equivalents on its balance sheet. Cash that can be utilized to secure organic growth or bolt-on acquisitions.\nData by YCharts\nIf I were to summarize this section, I'd highlight management's ability to drive continuous improvements within its operating structure, to the point where its target operating model isn't too far away. All of this while securing its \"rule of 40\" number comes in at 77%, quite impressive. Holding more cash than debt on its balance, the company is well padded to meet its future, while still growing immensely.\nThe Outlook & Valuation\nNothing of what I've covered here is hidden to Wall Street, which also means that we must accept a premium price, more on that in a minute.\nAccording to 29 analysts following CrowdStrike, 19 of those are very bullish on the company, the highest amount and percentage in terms of distribution in the last three years. Their current average price target for the stock comes in at $293 per share, suggesting a 40% upside from the price today. Such targets don't make promises, but it gives an indication, that the stock could be at a relative bargain compared to how it has fared recently.\n\nThose same analysts also provide forecasts related to both top- and bottom-line, with the revenue outlook expected to maintain its strong growth. By the end of FY24, the company would (if the price remained stable) still be trading at a P/S of 17.8, with Apple Inc. (AAPL) and Alphabet Inc. (GOOGL) both trading at around 8 just for comparison. I don't find those growth expectations unrealistic given what I've uncovered already so far, but no one can know for certain how the situation will look like in two years. Should CrowdStrike also manage to achieve the consensus EPS expectations from the same analyst group, then the company would still trade at a P/E of 146 by FY24.\nIf I were to try and understand where the current valuation is coming from, then I'd highlight that the company has grown its revenue by 2.400% since FY17 until now (The company went public in June 2019). Growing from a small base is more accommodating, but so far, the company hasn't shown evidence that it is about to slow down.\nData by YCharts\nThe company currently trades at an EV to revenue of 35.7, roughly the same as when the company went public, only difference being it has grown massively since then. If we observe the same picture but measured in percentage growth, we see the massive returns for shareholders. In fact, it is trading slightly lower than during its IPO when measured on EV to revenue, but shareholders have been rewarded richly due to the very strong revenue growth. As such, the growing share price hasn't been driven by an expansion in its multiples, but by the strong operational execution conducted by the company. Again, make no mistake, an EV/Revenue multiple of 35.7 is very high but by far not the highest it has been trading at since its IPO and as evident from its historical performance, also a level that can create shareholder value. In other words, the performance of the stock, is following the fundamentals of the company.\nData by YCharts\nA Few Thoughts On Risk\nWhenever a company trades at such multiples, there is very limited room for failure on especially top-line performance. A slight miss on revenue growth, or communication suggesting unclarity concerning coming quarters, or a guidance that is below analyst consensus estimates, any of those reasons can cause a significant downwards movement in the share price. Whenever that happens, it often requires a series of strong quarters and solid management communication for the street to regain confidence in the company.\nTwo companies who have fallen from similarly high levels during 2021 are DocuSign Inc. (DOCU) and Pinterest Inc. (PINS). DocuSign due to weak revenue expectations and Pinterest due to uncertainty concerning the outlook for MAU (Monthly Active User) growth. Both of those companies were trading at above P/S ratios of 30 earlier this year, with CrowdStrike currently trading at DocuSign's peak from earlier this summer. Point being, the situation can change drastically in a very short time frame, and taking the example of Pinterest, management still hasn't managed to calm the investment community as evident by its continuous slip since uncertainty manifested itself. As such, both companies are down more than 30% YTD.\nData by YCharts\nThe most common cause for concern, would be competition or that management has misunderstood how the market will develop, resulting in having to adjust expectations downwards. As shown in Gartner's quadrant earlier on in this article, the cybersecurity arena is a competitive one. Some of its characteristics is shifting technology and frequently changing products in an era where digitalization is undergoing rapid change.\nWith a market that is still fragmented, a changing competitive landscape could be the result of partnerships, acquisitions, or technological advancements. As mentioned, I see great value in the AI model of CrowdStrike combined with the network effects, but a significant technological advancement can't be predicted but could lay waste to CrowdStrike's future. As investors, it is paramount that we invest with open eyes, accepting that we face risks, especially in the situation of a high growth company still to reach its target operating model.\nConclusion\nI'm a long-term investor, willing to hold onto my positions for years, waiting for them to unfold and tell their true story. In the case of CrowdStrike, we are dealing with a company with a hefty price tag no matter the valuation metric put to use, but also a company where the fundamentals have moved up and to the right at a blazing pace. Immense growth, strong development in its operating model and no signs of slowing down while having asserted its place in the cybersecurity industry combined with great network effects build into its service offering. CrowdStrike has what I look for in an industry winner, and I've initiated a position earlier in December, a position I plan on expanding as time goes by. I find that the recent pull-back offers some cushion in terms of downside pricing risks, but also want to underline that it still trades at very high multiples. Given my appetite for risk and the fact that similar high-flying growth companies have been put into the dust during 2021, I initiate a small position of 1-2% of my portfolio, with the willingness to grow it via dollar cost averaging. I do however believe, that when I look back at my investment in several years from now, that this company could be a market beater and that it mattered more that I held shares in the company than whether I initiated my position at $175 or $225 a share. Impressive gross retention of customers and a very impressive dollar-based retention rate tell me, that this company has managed to create a platform of services, which customers value highly and on top comes management continuous efforts towards expanding CrowdStrike's capabilities allowing for a growing total addressable market.","news_type":1},"isVote":1,"tweetType":1,"viewCount":72,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"CN","currentLanguage":"CN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":4,"xxTargetLangEnum":"ZH_CN"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/693795723"}