Shares of CrowdStrike (CRWD +2.19%) have soared since the cloud-based endpoint cybersecurity provider went public in June, and a strong fiscal first-quarter report has added fuel to the fire. CrowdStrike edged out analyst estimates for both revenue and earnings, more than doubling revenue on a year-over-year basis. This strong growth helped propel the stock to double-digit gains on Friday.
Attracting new customers
While CrowdStrike didn't beat analyst estimates by much, it was enough to keep the post-IPO rally going.
|
Metric |
Q1 2019 |
Change (YOY) |
Compared to Average Analyst Estimate |
|---|---|---|---|
|
Revenue |
$96.1 million |
103% |
Beat by $0.5 million |
|
Non-GAAP earnings per share |
($0.47) |
N/A |
Beat by $0.01 |
Data source: CrowdStrike. YOY = year over year. GAAP = generally accepted accounting principles.
Subscription revenue totaled $86 million in the first quarter, accounting for most of the company's revenue and growing by 116% year over year. Professional services revenue was $10.1 million, up 33.9% year over year. CrowdStrike's annual recurring revenue jumped 114% year over year, to $364.6 million.
A surge in new customers drove some of the company's growth. CrowdStrike added 543 net new subscription customers during the quarter, bringing its total customer count to 3,059. Those new customers included large enterprises, as well as small and midmarket customers, according to CEO George Kurtz during the first-quarter earnings call.
The rest of CrowdStrike's growth was driven by additional revenue from existing customers. The company's dollar-based net retention rate, which measures how much existing customers are expanding their spending, was 147% during the first quarter. That's far higher than the company's benchmark of 120% or above.
Image source: Getty Images.
Profits remain elusive
While CrowdStrike's profitability metrics generally moved in the right direction during the first quarter, the company is still far from turning a profit. On a GAAP basis, CrowdStrike posted a net loss of $26 million. On a non-GAAP basis, the company lost $22.1 million.
Both numbers improved year over year, thanks to rising revenue and a higher gross margin associated with subscription products. CrowdStrike's subscription gross margin was 73% in the first quarter, up from 62% in the prior-year period. Much of that additional gross profit, though, was wiped out by rising operating expenses, which jumped 51.7% year over year. The end result was a small improvement in the bottom line.
Free cash flow has also yet to turn positive. CrowdStrike reported a free cash flow loss of $16.1 million for the first quarter, barely better than the $16.7 million loss in the prior-year period.
More growth ahead
CrowdStrike expects the bottom line to take a back seat to growth in the second quarter and the full year. Second-quarter revenue is expected between $103 million and $104 million, with a non-GAAP net loss between $30 million and $30.5 million. For the full year, revenue between $430.2 million and $436.4 million is expected, along with a non-GAAP net loss between $103.2 million and $105.9 million.
CrowdStrike sees its growth being driven by expanding the types of endpoints its products secure. In addition to desktops and servers, the company has secured workloads involving virtualized and cloud environments, Internet of Things devices, and containers. CrowdStrike also launched versions of its Falcon product for Android and iOS during the first quarter.
Growth will also be driven by going after smaller customers, as well as customers in the federal government. On top of that opportunity, the CrowdStrike Store, which offers an ecosystem of third-party applications, represents another revenue opportunity.
CrowdStrike's growth rate will inevitably slow as the company gets bigger, and the company will have to eventually figure out how to turn a profit. But investors are clearly impressed by its ability to win new customers and extract more revenue from existing customers. If CrowdStrike can maintain that momentum, the stock could keep flying.
