CrowdStrike (CRWD 0.13%) has gotten clobbered during the tech-sector meltdown. Shares are more than 60% below their peak price from late 2021.
However, CrowdStrike is a better company now than it was when shares hit their zenith. The cybersecurity company's strategy of leveraging the power of the cloud and artificial intelligence (AI) is driving blistering growth, which isn't likely to stop anytime soon. That's why I couldn't resist taking advantage of its lower price to add more shares to my portfolio.
AI-powered growth
CrowdStrike built its Falcon platform to reinvent network security for the age of the cloud. The cloud-based platform collects 2 trillion data points each day, enabling its AI technology to grow smarter as it detects anomalies in the data. This approach helps it stop the most sophisticated threats. In third-party testing, the company's platform achieved 100% ransomware prevention with zero false positives. According to comments by co-founder and CEO George Kurtz on last quarter's conference call, this "reflects our superior AI and machine learning models and the data mode advantage we derive from our unique graph technology."
Customers are flocking to its leading-edge AI-powered platform. CrowdStrike's customer count has grown 44% in the past year to over 21,000. Many clients start by subscribing to a few of its 23 modules to test its capabilities. Most stay with the company -- its retention rate has been above 97.4% over the past year -- and expand that relationship (dollar-based net retention has been above 120% over the past several years). Today, about 60% of its customers subscribe to five or more modules. However, only about 21% have signed up for seven or more, so CrowdStrike has a lot of room to expand within its existing customer base.
Those drivers are helping power tremendous revenue and earnings growth rates. CrowdStrike's revenue surged 53% in its fiscal third quarter to $580.9 million, while its non-GAAP (adjusted) net income more than doubled to $96.1 million. The company also reported robust free cash flow of $174.1 million, growing its year-to-date total to $467 million, a 49% year-over-year increase. That boosted the company's cash position to $2.47 billion against only $741 million of debt.
A massive opportunity
CrowdStrike believes it's barely scratching the surface of its total addressable market (TAM) opportunity:
Image source: CrowdStrike investor relations presentation.
As that slide shows, the TAM for CrowdStrike's current product portfolio is $76.1 billion, with organic market growth further expanding its TAM over the next two years. Meanwhile, the company's product roadmap, future initiatives, and the cloud security opportunity should grow its TAM to $158 billion by 2026. With its annual recurring revenue currently over $2 billion, CrowdStrike has a lot of room to run.
Growing free cash flow and a cash-rich balance sheet give the company the flexibility to continue investing in innovation, in part by making strategic acquisitions. Last year, CrowdStrike agreed to acquire Reposify to expand its threat intelligence and security and IT operations product suites. Meanwhile, in 2021 it bought SecureCircle to expand into the data protection market, and Humio to deliver the industry's most advanced platform for next-generation, index-free XDR (extended detection and response) capabilities. These investments are helping drive rapid growth in its emerging product category and enhancing its ability to win new customers, retain existing ones, and expand relationships.
A top-notch AI stock at a compelling price
The tech sector sell-off has weighed on shares of CrowdStrike. While it's not exactly a bargain, I couldn't resist the opportunity to buy more shares now that they're trading for a much lower price. I think that over the very long term, the company has tremendous upside potential as it leverages the power of AI to help secure the cloud.
