The Nasdaq Composite has jumped 9% in 2023 so far, giving investors some relief after last year's forgettable performance that saw the index lose a third of its value amid rising interest rates, surging inflation, recessionary fears, and the index's strong start to the year has rubbed off positively on shares of CrowdStrike (CRWD 0.14%).
CrowdStrike stock has gained 21% in 2023. The cybersecurity specialist's fiscal 2023 fourth-quarter results (for the year ended Jan. 31, 2023), which were released on March 7, suggest that it is set for more upside in 2023 and beyond, especially considering that the Nasdaq may bounce back strongly this year. Let's look at two reasons why investors may want to buy CrowdStrike stock right now.
CrowdStrike's terrific growth is sustainable
CrowdStrike reported $2.24 billion in revenue in fiscal 2023, an impressive increase of 54% over the prior year. The company's non-GAAP (adjusted) net income also jumped to $1.54 per share from fiscal 2022's figure of $0.67 per share. A 41% year-over-year increase in the company's subscription customers and robust customer retention were the reasons behind its healthy growth last quarter.
The company ended the year with just over 23,000 subscription customers. The good part is that 62% of CrowdStrike's subscription customers adopted five or more of its cybersecurity modules. That's an improvement over the prior-year period when 57% of CrowdStrike subscribers were using five or more modules from the company. The number of customers using six or more CrowdStrike modules also increased by 5 percentage points year over year to 39%.
It is also worth noting that the company's dollar-based net retention rate for its subscription customers stood at a healthy 125% last quarter. CrowdStrike has maintained a 120%-plus dollar-based net retention rate for the past five years, which points toward the company's ability to generate more business from its existing customers. That's because the metric compares CrowdStrike's annual recurring revenue (ARR) from a cohort of subscription customers to the revenue generated by those same customers in the year-ago period.
All this indicates strong demand for CrowdStrike's cloud-based cybersecurity offerings. Given the company forecasts a total addressable market worth nearly $98 billion by 2025 based on its current portfolio of services, one can see that CrowdStrike could be at the beginning of a massive growth curve.
Not surprisingly, the company is anticipated to deliver impressive top-line growth in the coming years. The company itself anticipates nearly $3 billion in revenue this year, which would be a 34% increase over fiscal 2023.
CRWD Revenue Estimates for Current Fiscal Year data by YCharts
The subscription business is driving solid bottom-line growth
CrowdStrike's focus on boosting its ARR by way of growth in the subscription business has turned out to be a tailwind for the company's margins and earnings. The company finished the previous quarter with an ARR of $2.56 billion, an increase of 48% over the prior year. It is worth noting that CrowdStrike's quarterly ARR increased 36 times since the first quarter of fiscal 2018 when the metric stood at $71 million.
As the ARR represents the annualized value of customer subscription contracts at the end of a period, the growth in this metric means that CrowdStrike is building a solid revenue pipeline that should ensure solid top-line growth for years to come. At the same time, the focus on gaining more subscription customers has been a catalyst for the company's margins.
CrowdStrike ended fiscal 2023 with a non-GAAP gross margin of 76%. That's a huge improvement over fiscal 2018's reading of 55%. Moreover, growth in the subscription business enabled CrowdStrike to reduce costs and improve operating leverage. The company's non-GAAP operating margin increased to 23% in fiscal 2023 from just 7% in fiscal 2021.
The improvement isn't surprising as the growth in the subscription business would allow CrowdStrike to reduce marketing spend since it can cross-sell more products to existing customers and generate more business from them. In simpler words, CrowdStrike can generate additional revenue from existing customers without having to incur any additional acquisition costs.
As the company gets 94% of its revenue from the subscription business, CrowdStrike is in a nice position to further improve its margin profile by upselling more modules to its existing customers. And, as has already been discussed, the company is finding success on this front with more subscription customers adopting multiple modules.
As such, CrowdStrike seems set for healthy bottom-line growth in the coming years.
CRWD EPS Estimates for Current Fiscal Year data by YCharts
What's more, analysts are anticipating 56% annual earnings growth from CrowdStrike for the next five years. All this indicates that this cybersecurity stock is built for long-term growth, and it could live up to Wall Street's ambitious growth targets given the multibillion-dollar revenue opportunity it is sitting on. Of course, the stock is expensive with a price-to-sales ratio of 13.4 and forward earnings multiple of 55, but CrowdStrike can justify its rich valuation with rapid growth.
Also, investors shouldn't forget that CrowdStrike's valuation is much lower than where it was a year ago.
CRWD PS Ratio data by YCharts
So, investors looking for a growth stock that could soar higher over the long run are getting a relatively good deal on CrowdStrike right now, which they may want to grab given its bright prospects.
