Due to a tough macroeconomic environment, many tech stocks have taken a beating in recent months. But that didn't stop CrowdStrike (CRWD -3.80%) from delivering exceptional results in the first quarter of fiscal 2023 (ended April 30, 2022). The company beat Wall Street's estimates on the top and bottom lines, and management raised full-year guidance.
Even so, the stock fell more than 2% after hours, and shares currently trade 41% off their all-time high. Given CrowdStrike's momentum and the critical nature of cybersecurity, this looks like a buying opportunity.
Here's what you should know.
NASDAQ: CRWD
Key Data Points
CrowdStrike crushed earnings
CrowdStrike has become the gold standard in several verticals of the cybersecurity industry. Its ever-growing portfolio comprises 22 software modules, ranging from endpoint and cloud protection to managed security services. The secret to its success is the cloud-native architecture of its Falcon platform, which allows CrowdStrike to crowdsource a tremendous amount of security data each day. The Falcon platform leans on artificial intelligence (AI) to make sense of that information and prevent cyberattacks.
That creates a powerful network effect. Each new customer brings more data to the platform, and each data point makes its AI models a little better at detecting threats, creating value for all customers. That virtuous cycle keeps CrowdStrike on the bleeding edge of threat intelligence, and it continued to pay off in the first quarter.
Revenue skyrocketed 61% to $488 million and non-GAAP earnings jumped threefold to $0.31 per diluted share. The company also generated $215 million in cash from operations, up 46% from the prior year.
Beyond those headline metrics, investors should note that 71% of customers now use four or more software modules, up from 64% in the prior year. That means customers are spending more over time, demonstrating the power of its land-and-expand growth strategy. Moreover, the switching costs rise with each additional module. In other words, replacing four software products is much more burdensome than replacing one.
Image source: Getty Images.
Cybercrime is costly
Enterprises are investing heavily in digital transformation projects, driving the adoption of cloud computing and an explosion in the number of connected devices. Additionally, workforces are becoming increasingly mobile, meaning more employees are accessing sensitive corporate resources from unsecured networks. Those trends have increased the number of vulnerable attack surfaces, contributing to a steady rise in cybercrime.
At the same time, cyberattacks are becoming more sophisticated. The internet makes it possible for almost anyone to get their hands on ransomware, and the dark web offers hackers an easy way to monetize stolen data and identities. Similarly, governments and militaries are pouring money into cyber operations, meaning some hackers are backed by substantial funding.
To that end, cybercrime damages are expected to total $10.5 trillion by 2025, up from $3 trillion in 2015, according to Cybersecurity Ventures. That astonishing figure makes one thing crystal clear: Effective cybersecurity is essential.
CrowdStrike is an industry leader
CrowdStrike has earned a reputation for industry-leading threat detection, and it continued to garner praise from analysts in the first quarter. Most notably, Forrester Research recognized the company as a leader in incident response and endpoint detection, and Gartner named CrowdStrike the top player in the managed security services market.
Looking ahead, the company puts its market opportunity at $71 billion by 2024, but management believes its product pipeline could push that figure to $126 billion by 2025. On that note, CrowdStrike recently debuted its Extended Detection and Response (XDR) module. XDR pulls security data from third-party vendors -- for instance, identity signals from Okta and network signals from Zscaler -- onto the Falcon platform, supercharging CrowdStrike's AI engine. In turn, that improves visibility for clients, accelerating the investigation and resolution of threat.
CrowdStrike stock dipped about 2% after hours on Thursday. That may change when the market opens today. Either way, picking up a few shares right now could make you richer in the long run. Yes, the stock is still pricey at 27 times sales, but that multiple is much lower than the three-year average of 39 times sales. More importantly, CrowdStrike has positioned itself as a leader in a critical industry, and that should translate into market-beating returns in the coming years.
