During the peak of the growth-stock buying frenzy, CrowdStrike's (CRWD +0.11%) market cap reached $67 billion on Nov. 9, 2021. But today, the cloud-based cybersecurity company is worth only $23 billion.
CrowdStrike's stock tumbled as investors fretted over its slowing growth, lack of profit, and high valuation. Rising interest rates and other macro headwinds exacerbated that pressure by crushing high-growth stocks overall. But could CrowdStrike recover from this slump and become a megacap stock comparable to Alphabet (GOOG 0.28%) (GOOGL 0.15%) by 2040? Let's look beyond its near-term challenges and focus on its long-term prospects to find out if Crowdstrike can overtake Alphabet, which has a current market cap around $1.3 trillion and is poised to keep growing.
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How much larger could CrowdStrike grow?
CrowdStrike has disrupted traditional cybersecurity companies by completely replacing on-site appliances -- which took up lots of space, required regular maintenance, and were difficult to scale as an organization grew -- with cloud-based services. At the end of fiscal 2020 (which ended in January 2020), CrowdStrike had 5,431 total subscription customers. That figure had nearly quadrupled to 21,146 as of the end of the third quarter of fiscal 2023.
CrowdStrike expected to generate about $2.2 billion in revenue in fiscal 2023, which would represent a compound annual growth rate (CAGR) of 67% from its $481 million in revenue in fiscal 2020. Its dollar-based net-retention rate, which gauges its year-over-year revenue growth per existing customer, has stayed above 120% ever since its initial public offering (IPO) in 2019.
Analysts expect the company's revenue to continue rising at a CAGR of 32% over the following two years and reach $3.9 billion in fiscal 2025.
Could CrowdStrike become a megacap stock?
Based on those estimates, it's reasonable to expect CrowdStrike to grow its top line at a CAGR of 20% from fiscal 2023 to fiscal 2030, which implies its annual revenue could rise from $2.2 billion to $7 billion. If it continues to grow at a more modest CAGR of 15% for the following 10 years, it could potentially generate $29 billion in revenue in fiscal 2040.
Using those figures, at 11 times sales, CrowdStrike would be worth nearly $320 billion by 2040, which would exceed the $200 billion threshold for megacap stocks, but still be tiny compared to Alphabet's current market cap of $1.3 trillion, which will likely be larger in 2040.
If Alphabet grows its top line at a CAGR of 10% from 2022 to 2040 -- which would be realistic for one of the world's largest digital-advertising and cloud-platform companies -- it could generate over $1.5 trillion in annual revenue by the final year of this example. Its current price-to-sales ratio of 4 would give the company a massive market cap of about $6 trillion.
NASDAQ: CRWD
Key Data Points
In short, it's unlikely that CrowdStrike will come anywhere close to matching Alphabet's market cap within the next two decades. That isn't surprising, since even the largest stand-alone cybersecurity companies are still much smaller than diversified tech giants like Alphabet, which notably acquired CrowdStrike rival Mandiant for $5.4 billion last September.
But look beyond CrowdStrike's market cap
CrowdStrike might not become a tech titan by 2040, but it could generate much bigger gains than Alphabet and its FAANG and MAMAA counterparts over the next two decades because it's smaller and growing a lot faster.
CrowdStrike's stock isn't cheap right now, and it faces some near-term concerns regarding its slowing growth. But as a shareholder, I believe its stock will continue to rise as it benefits from the secular expansion of the cybersecurity market and the ongoing transition from on-site appliances toward cloud-based services.
