Digital transformation projects made cybercrime an increasingly serious problem over the past decade, triggering demand for effective cybersecurity software. That tailwind helped CrowdStrike Holdings (CRWD 4.18%) reach a $2 billion revenue run rate in the most recent quarter, just 11 years after the company was founded. Only one software vendor ever hit that mark faster.
During the pandemic, Zoom Video Communications (ZM 3.24%) saw its videoconferencing software go viral as business closures and lockdowns created a need for remote collaboration solutions. That catalyst helped Zoom achieve a $2 billion revenue run rate in 2020, just nine years after it was founded.
Despite incredible growth, CrowdStrike and Zoom saw their share prices plunge 44% and 85%, respectively. Here's why investors should buy the dip.
1. CrowdStrike: A cybersecurity leader
CrowdStrike continued to receive high praise from cybersecurity industry analysts over the past year. The International Data Corp. and Gartner both recognized its leadership in endpoint security, Forrester Research recognized its leadership in cybersecurity incident response, and CrowdStrike was named the best security company at the 2022 SC Awards, marking its fourth victory in the last five years.
One big reason for that success is the unique architecture of its Falcon platform. It includes 22 different modules -- from endpoint and cloud security to identity protection and threat intelligence -- all of which are delivered through a single software agent that can be installed without a device reboot. No other vendor can offer that convenience.
Additionally, the Falcon platform collects and processes security signals from every device it protects, and it employs machine learning -- a type of artificial intelligence that becomes more effective over time -- to predict and prevent cyberattacks. As the market leader in endpoint security, CrowdStrike has more data than other vendors, which makes its AI engine better at detecting threats, according to management.
Finally, the broad scope of the Falcon platform is another key advantage, as it allows businesses to consolidate security spending through a single vendor. CrowdStrike grew its customer base 51% over the past year, and the average customer increased spending by more than 20%. That compounding effect fueled impressive financial results. Revenue soared 61% to $1.8 billion, and free cash flow (FCF) climbed 49% to $543 million.
Investors should expect that momentum to continue in the coming years. Cybersecurity is an essential expense for most businesses. In fact, nearly 70% of businesses plan to spend more on cybersecurity in the future, while just 15% plan to spend less, according to a recent survey from PricewaterhouseCoopers.
CrowdStrike puts its market opportunity at $97 billion by 2025, leaving a long runway for growth. And with shares trading at 20.6 times sales -- a bargain compared to the three-year average of 36.5 times sales -- this is a great time for long-term investors to buy this growth stock.
2. Zoom Video Communications: Gaining momentum beyond Zoom Meetings
Zoom specializes in cloud communications. Its best known product is Zoom Meetings, its market-leading videoconferencing application that saw viral adoption during the pandemic. But its portfolio also includes enterprise phone system Zoom Phone, omnichannel customer service solution Zoom Contact Center, and corporate conferencing platform Zoom Rooms, as well as developer tools that support third-party integrations.
Zoom Meetings earned a reputation for reliability and simplicity, and that brand authority has laid the foundation for a land-and-expand growth strategy. For instance, Zoom Phone surpassed 4 million seats in August 2022, a particularly impressive feat considering the product didn't even exist four years ago. CFO Kelly Steckelberg also noted early traction with Zoom Contact Center during the most recent earnings call.
Zoom posted reasonably strong earnings results over the past year, though growth certainly slowed since the onset of the pandemic. Its enterprise customer count -- meaning customers engaged by its direct sales team -- climbed 18%, and the average enterprise customer spent 20% more. In turn, revenue climbed 18% to $4.3 billion, though FCF fell 24% to $1.3 billion. Investors may be disappointed to see FCF decrease, but it's important to contextualize that figure. Zoom still achieved a FCF margin of 30% in a difficult macroeconomic setting, and it accomplished that feat after growing FCF 137% in the prior year.
Looking ahead, investors have good reason to believe Zoom can reaccelerate growth, especially once the macroeconomic environment normalizes. Zoom Meetings currently accounts for the vast majority of revenue -- no other product yet accounts for 10% of revenue -- but momentum with Zoom Phone and Zoom Contact Center suggest that will change in time.
Additionally, Zoom recently expanded into adjacent artificial intelligence services with the launch of Zoom IQ for Sales -- conversational intelligence software that analyzes interactions in Zoom Meetings to surface insights and automate tasks for sales teams. That type of innovation should keep Zoom at the forefront of the video conferencing market.
On that note, Zoom puts its addressable market at $91 billion by 2025, leaving a long runway for growth. And with shares trading at six times sales -- a monster discount compared to the three-year average of 36.9 times sales -- this growth stock is worth buying today.
