In recent years, trends like cloud computing, remote work, and the proliferation of connected devices have provided hackers with new attack opportunities, and cybercrime has increased at an alarming pace. In 2021, ransomware attacks rose 105% as shadow organizations targeted hospitals, energy companies, meat processors, and other critical infrastructure. More broadly, the number of cyberattacks in an average week soared 50% last year.
That creates an obvious need for effective cybersecurity, and CrowdStrike (CRWD +1.59%) has become the gold standard in endpoint (device) security and managed services. That alone makes for a compelling investment thesis, but panicked investors have still sold the stock hand over fist. To that end, CrowdStrike has plunged 46% from its peak.
However, those investors have overlooked several important details, creating a buying opportunity. Here's what investors interested in CrowdStrike should know.
NASDAQ: CRWD
Key Data Points
More data, better artificial intelligence
CrowdStrike currently offers 22 different software modules that span several cybersecurity verticals, including endpoint and cloud security, threat intelligence, and managed detection and response. Its platform crowdsources security signals from across its ecosystem of protected devices, leaning on artificial intelligence (AI) and behavioral analytics to surface insights and prevent attacks.
That creates a powerful network effect. As the market leader in endpoint security, CrowdStrike captures more data than its rivals, which keeps it on the cutting edge of threat intelligence. Better yet, the company's data advantage makes its AI engine "uniquely effective" in predicting threats, according to management. That value proposition has translated into tremendous customer growth, thereby bringing more data to the platform and reinforcing CrowdStrike's competitive edge.
Not surprisingly, the company's financial performance has been nothing short of stellar.
|
Metric |
Q1 2021 |
Q1 2023 |
CAGR |
|---|---|---|---|
|
Customers |
6,261 |
17,945 |
69% |
|
Revenue (TTM) |
$563 million |
$1.6 billion |
70% |
|
Free cash flow (TTM) |
$116 million |
$481 million |
104% |
Data source: SEC Filings, YCharts. TTM = trailing-12-months. CAGR = compound annual growth rate. Note: CrowdStrike fiscal Q1 2023 ended April 30, 2022.
Looking ahead, the network effect created by CrowdStrike's AI should help it maintain its leadership position in the endpoint security market, valued at $13.2 billion in 2022 while generating sufficient cash flow to strengthen its presence in other industry verticals.
A significant labor shortage
CrowdStrike has extended its dominance beyond endpoint security, gaining traction in the managed security space as well. Last year, International Data Corp. recognized the company as the leader in managed detection and response (MDR), citing a stronger product and a better growth strategy than any rival. More recently, research firm Gartner noted that CrowdStrike held more market share in MDR than any other vendor.
What is MDR? It's a service that allows companies to outsource their cybersecurity to a third party. In CrowdStrike's case, Falcon Complete is an MDR product backed by a $1 million breach warranty. Specifically, CrowdStrike will handle threat hunting, monitoring, and remediation on behalf of companies that lack the time or talent to do it themselves.
That value proposition is especially compelling because there were an estimated 3.5 million job openings in the cybersecurity industry last year, up from 1 million in 2014, according to Cybersecurity Ventures. Moreover, the number of job openings is expected to remain at 3.5 million by 2025, even though the U.S. Labor Department expects information security analyst to be the 10th-fastest-growing job occupation over the next decade.
In short, demand for cybersecurity talent is incredibly high, and that means many organizations will lack the resources to handle their own protection in the coming years. As the MDR industry leader, CrowdStrike is well-positioned to capitalize on a $13.3 billion market opportunity.
Better yet, CrowdStrike recently added identity threat protection to its Falcon Complete offering, becoming the first company to offer a fully managed solution that addresses endpoints, cloud workloads, and identity. That type of innovation should keep the company at the forefront of the industry.
Innovation fuels the future
When CrowdStrike went public in 2019, its Falcon platform consisted of 10 software modules. That figure has more than doubled in the past three years, highlighting its capacity for innovation. One recent product is particularly noteworthy. Earlier this year, CrowdStrike launched its Extended Detection and Response (XDR) software.
XDR blends the company's first-party data with third-party data from vendors like Zscaler, Okta, and Cloudflare, supercharging CrowdStrike's AI engine to improve visibility and accelerate workflows for security analysts. Put another way, XDR allows clients to protect their entire IT ecosystem from a single platform, from endpoints and cloud workloads to networks and email systems.
More broadly, CrowdStrike's capacity for innovation should help the company grow at a rapid clip in the coming years. And with shares trading at 22 times sales -- well below their three-year average of 38 times sales -- it's time to buy this growth stock.
