CrowdStrike (NASDAQ:CRWD) has been one of the most successful cybersecurity IPOs in recent history. It went public in June 2019 at $34 per share, opened at $63.50 on the first day of trading, and is now in the mid-$250 range.

If you had invested $5,000 in its IPO back then, your stake would be worth more than $37,000 today. Let's see why CrowdStrike has impressed the market, and if its incredible rally will continue over the next few years.

How did CrowdStrike dazzle the bulls?

CrowdStrike attracted a stampede of bullish investors for four main reasons.

First, its approach was disruptive. Most cybersecurity companies install on-site appliances to monitor threats, but that model can be difficult to update and scale as an organization expands. CrowdStrike addresses that issue by only providing its security services as cloud-based applications.

A person uses a secure tablet.

Image source: Getty Images.

Second, that cloud-native approach locks its users into sticky subscription plans. Its total number of subscription customers rose from 5,431 at the end of fiscal 2020 (which ended Jan. 31) to 13,080 just six months later.

Third, CrowdStrike's customers continued to buy more cloud-based modules after they were locked into its ecosystem. In the fiscal second quarter, 53% of subscription customers had adopted at least five of its modules -- up from just 33% at the end of fiscal 2020. That "land and expand" strategy has kept CrowdStrike's net retention rate above 120% since its IPO.

Lastly, all of those strengths enabled it to generate explosive revenue growth with expanding subscription gross margins over the past three years:

Period

FY 2019

FY 2020

FY 2021

Revenue growth (YOY)

110%

93%

82%

Subscription gross margin*

69%

75%

79%

Source: CrowdStrike. YOY = year-over-year. *Non-GAAP.

Will CrowdStrike continue to grow?

CrowdStrike expects revenue to rise 59% to 61% in fiscal 2022, and non-GAAP subscription gross margin should remain between 77% and 82% (or more) all the way through fiscal 2025.

Analysts expect CrowdStrike's revenue and adjusted earnings to increase 61% and 74%, respectively, this year. In fiscal 2023, they could grow another 39% and 66%, respectively.

Investors should take those estimates with a grain of salt, but they indicate CrowdStrike's core platform, Falcon, will continue to expand and lock in more customers. They also suggest it will keep disrupting appliance-based cybersecurity companies with its cloud-based services.

But CrowdStrike isn't the market's only cloud-based cybersecurity company. SentinelOne, which provides a mixture of on-site and cloud-based services, claims its hybrid approach is faster and more reliable than CrowdStrike's cloud-only platform. Palo Alto Networks, one of the world's top providers of on-site firewall appliances, has also aggressively expanded its ecosystem of cloud and AI-based cybersecurity services over the past several years.

CrowdStrike stock also isn't cheap, trading at about 31 times next year's sales, and that high valuation could limit its upside potential. Palo Alto, which is growing at a slower rate, trades at just eight times revenue.

Why CrowdStrike still has a bright future

The stock has generated a year-to-date gain of about 23%, even as inflation-related fears have torpedoed many high-growth tech stocks.

The reason is simple: The indispensable nature of CrowdStrike's cybersecurity services grants the company plenty of pricing power to counter inflationary headwinds. Its cloud-native model is also more effective at locking in customers than the traditional appliance-based model, which books far less predictable revenue from appliance sales and service fees.

I doubt CrowdStrike will replicate its massive post-IPO gains over the next three years, since its organic growth is slowing down, and it's relying more heavily on acquisitions (including its recent purchases of Humio and SecureCircle) to boost its revenue and expand its ecosystem.

Nonetheless, CrowdStrike can still generate significant gains over the long term as it benefits from a growing demand for cloud-based security services. It will face plenty of challengers, but there's still room for all these companies to expand without trampling each other.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.