My, how things change in just a matter of months. All was looking well for endpoint security upstart CrowdStrike Holdings (CRWD 0.32%) after its third-quarter update in Dec. 2019, but things quickly came unraveled for the stock. Shares were down nearly 40% from year-to-date highs thanks to the coronavirus-induced market meltdown.
And that's okay, because shares were -- and still are -- trading for a hefty premium that bakes in massive growth for the foreseeable future. However, after the company reported its fiscal 2020 fourth-quarter results (for the 12 months ended January 31, 2020) on Mar. 19, shares rallied some 17%. As it turns out, COVID-19 might bring a silver lining to this cybersecurity outfit.
Image source: Getty Images.
The first public year is in the books
It would be an understatement to say CrowdStrike's actual fourth-quarter numbers bested expectations. Year-over-year total revenue growth of 89% far exceeded management's guidance for 69% to 73% growth provided just a few months prior. Within the total, annual recurring revenue (ARR) for the company's security subscription -- an important metric for cloud-based software-as-a-service companies -- went up 92% and came in at $600.5 million during the period.
All told, it was a great first year for CrowdStrike as a public concern after its IPO last summer. Gross margin increased, operating expenses grew much slower than the top line, and adjusted losses narrowed -- including an adjusted loss of just $3.9 million in the latest quarter (when backing out stock-based compensation and other non-cash expenses).
|
Metric |
12 Months Ended Jan. 31, 2020 |
12 Months Ended Jan. 31, 2019 |
Change |
|---|---|---|---|
|
Subscription revenue |
$436 million |
$219 million |
99% |
|
Total revenue |
$481 million |
$250 million |
93% |
|
Gross profit margin |
70.6% |
65.1% |
5.5 pp |
|
Operating expenses |
$486 million |
$299 million |
63% |
|
Net income (loss) |
($142 million) |
($140 million) |
N/A |
|
Adjusted net income (loss) |
($63 million) |
($119 million) |
N/A |
PP = percentage point. Data source: Crowdstrike Holdings.
Contributing to the results was a dollar-based retention rate of 124%, implying existing customers spent an average of 24% more with CrowdStrike than a year ago. Over the course of fiscal 2020, the company also picked up net 2,915 subscription customers, a 116% increase year over year.
Among the world's largest organizations, CrowdStrike only counts about half of them as customers (49 of the Fortune 100, and 40 of the top 100 global companies), not to mention myriad smaller businesses and government organizations.
There's reason to believe those numbers could go up dramatically.
A rosy outlook may have just gotten rosier
The mobility movement that cloud computing has helped launch has always created security holes. With employees able to access data and systems outside of legacy firewalls thrown up around offices from phones, tablets, and laptops, a new breed of cybersecurity solution is needed as organizations make the switch to digital-based operations. CrowdStrike's cloud-based endpoint security solves that problem and explains the torrid pace of expansion the company has enjoyed to date.
However, as COVID-19 has become a global pandemic, it has spurred an experiment of epic proportions: Millions of people are stuck at home, many of them working remotely. Massive events like this tend to leave an indelible mark on the world once the dust settles. It's my belief that this will be more than just a passing event. If businesses discover that their forced adaptation to the times ends up saving them some coin, makes employees happy, and future-proofs them from another similar disruptive event, then the work-from-home movement just got a shot in the arm.
That means CrowdStrike may have a black-swan event (an extremely rare surprise occurrence that has a large, out-sized effect) on its hands -- but of the positive variety. And the longer coronavirus disrupts the status quo, the harder it will be for things to return to the way they were before. If that's so, then endpoint security delivered via the cloud isn't just here to stay; it has massive growth potential ahead. I'm thus not balking at management's call for $723 million to $734 million in total revenue in fiscal 2021 -- a 51% increase at the midpoint -- including 73% revenue growth for the first quarter. Coronavirus isn't hurting CrowdStrike; rather, it's likely spurring the security upstart's expansion.
I think the time is right to start accumulating CrowdStrike shares again. As usual with small, high-growth stocks, keep those bets small so you have room in your portfolio to buy more over time.
