CrowdStrike's (CRWD -3.90%) stock price jumped nearly 14% during after-hours trading on March 9 following the release of its fiscal 2022 fourth-quarter earnings report.
The cybersecurity company's revenue surged 63% year over year to $431 million, beating analysts' estimates by $19 million. Its adjusted net income soared 123% to $70.4 million, or $0.30 per share on a diluted basis, which also exceeded analysts' expectations by 10 cents. But on a generally accepted accounting principles (GAAP) basis -- which factors in its acquisitions, stock-based compensation, and other one-time expenses -- CrowdStrike's net loss widened from $19 million to $42 million.
Image source: Getty Images.
Investors seemed impressed enough with CrowdStrike's headline numbers to forgive its wider net loss, but the stock remains about 35% below its all-time high of $298.48 per share, which it reached just last November. So should investors start buying more shares of CrowdStrike today?
How fast is CrowdStrike growing?
Many cybersecurity companies install on-site hardware appliances to run their services, but that approach can be expensive to scale as an organization expands. CrowdStrike addresses that issue with Falcon, a cloud-native cybersecurity service that doesn't use any on-site appliances.
CrowdStrike's first-mover's advantage in the cloud-native cybersecurity space has enabled it to lock in lots of customers with its recurring subscriptions. It ended the fourth quarter with 16,325 subscription customers, representing 65% growth from a year ago. Its annual recurring revenue (ARR) rose 65% to $1.73 billion, and it added $217 million in net new ARR during the quarter, which marked its second consecutive quarter of accelerating net new ARR growth.
CrowdStrike attributes that growth to its "land and expand" strategy, which locks in customers with a trial of four modules to cross-sell additional modules. That strategy is paying off: Its subscription customers used more of its modules on a sequential and year-over-year basis in the fourth quarter:
|
Period |
Q4 2021 |
Q3 2022 |
Q4 2022 |
|---|---|---|---|
|
4+ Modules |
63% |
66% |
69% |
|
5+ Modules |
47% |
55% |
57% |
|
6+ Modules |
24% |
32% |
34% |
Data source: CrowdStrike.
CrowdStrike's Falcon hosts more than 20 modules, which gives it plenty of room to boost its ARR per customer. It will also continue to organically and inorganically expand that ecosystem with new modules.
That's why its dollar-based net retention rate, which gauges its year-over-year revenue growth per existing customer, has consistently remained above 120% ever since its IPO in June 2019.
Expanding margins and rising cash flows
CrowdStrike ended the quarter with an adjusted subscription gross margin of 79%, compared to 80% a year ago. For the full year, its adjusted subscription gross margin remained flat at 79%.
During the conference call, CFO Burt Podbere said the company was "pleased with our strong subscription gross margin performance as we continue to invest for growing demand."
Its adjusted operating margin expanded six percentage points year over year to 19% in the fourth quarter, and doubled to 14% for the full year. That improved financial discipline enabled it to generate a record free cash flow (FCF) of $442 million for the full year, which gives it a FCF margin of 30%. It expects its FCF margin to remain at approximately 30% in fiscal 2023.
CrowdStrike is only profitable on a non-GAAP basis, but that growth arguably makes it a much safer investment than its smaller challenger SentinelOne (S -2.72%), which generates faster top-line growth but remains deeply unprofitable by both GAAP and non-GAAP measures.
Rosy guidance with a reasonable valuation
For the full year, CrowdStrike's revenue rose 66% to $1.45 billion. Its adjusted net income surged 157% to $161 million, and its adjusted earnings per share (EPS) increased 148% to $0.67.
For fiscal 2023, it expects its revenue to grow 47%-49%, its adjusted net income to increase 56%-70%, and its adjusted EPS to grow 54%-69%.
Based on the midpoint of its top-line forecast and a stock price of $193, CrowdStrike trades at just over 20 times this year's sales. That price-to-sales ratio isn't cheap, but it's reasonable relative to its growth rates as well as its "hypergrowth" peers. SentinelOne, which is expected to generate 72% sales growth in fiscal 2023, trades at 27 times that estimate.
Is it the right time to buy CrowdStrike?
CrowdStrike's stock got a bit overheated last year, but it arguably looks much more attractive today. Its business is well-insulated from macro headwinds, while a rise in Russian cyberattacks in the aftermath of its invasion of Ukraine could spark fresh demand for its cybersecurity services.
CrowdStrike's stock could remain volatile for the foreseeable future, but I believe it's the right time to accumulate more shares of this high-growth company. It's disrupting the market for legacy cybersecurity appliances, its ecosystem is sticky, and it has a long runway for growth.
