Cloud-based cybersecurity specialist CrowdStrike Holdings (CRWD +2.72%) is seen by many as a future titan of the tech industry, whereas many look at personal-computing pioneer Dell Technologies (DELL 0.49%) as a titan of the past. And yet CrowdStrike is looking to Dell to help it move forward.
On March 6, CrowdStrike and Dell announced an alliance in which CrowdStrike's cybersecurity solutions will be promoted to Dell's enterprise customers. And this is a crucial development for CrowdStrike's ambitions of reaching a certain -- and important -- customer demographic.
NASDAQ: CRWD
Key Data Points
CrowdStrike's huge customer opportunity
Shareholders who want to feel good about CrowdStrike can start by looking at the company's impressive customer base. The Global 2000 is a list by Forbes of the largest, most profitable companies in the world. And of the 2,000 companies on this list, 556 are CrowdStrike customers, showing how well the company is doing with attracting top-tier clients.
Overall, CrowdStrike is succeding at attracting customers. In its fiscal 2023, which ended in January, it grew its customer base 41% year over year to more than 23,000 -- adding nearly 1,900 net new customers in the fourth quarter alone.
For investors in technology stocks, including CrowdStrike, looking at how fast the customer base is growing is a good way to monitor the health of the business.
Many tech companies share how many employees a customer has. But cybersecurity companies like CrowdStrike don't really measure a customer by its workforce but rather by its number of endpoints -- devices that connect to the network.
Speaking at the Morgan Stanley Technology Media and Telecom conference earlier this month, CrowdStrike CEO George Kurtz said that there are 50 million small and midsize businesses in the world with 5 to 250 endpoints, of which only around 18,000 are CrowdStrike customers.
It undoubtedly wants to land the roughly 1,400 Global 2000 companies that aren't its customers yet -- those would be big contracts. But it also wants to do business with the 50 million smaller companies, too.
The problem is that it's less efficient to fish for minnows when there are bigger fish in the sea. Therefore, going after those 50 million customers requires an efficient strategy. And that's where Dell comes in.
NYSE: DELL
Key Data Points
Dell generated over $100 billion in its fiscal 2023, making it one of the biggest computing businesses in the world. And a huge part of its business is with enterprise customers.
A little more than one-third of its revenue comes from helping businesses build their tech infrastructure. And another 45% comes from computer and software solutions for enterprise customers.
In other words, Dell has tons of enterprise customers. And now it will be offering those customers CrowdStrike cybersecurity. The gritty details aren't worth exploring here. But suffice it to say that I believe it's far more efficient for CrowdStrike to partner with Dell to leverage its existing relationships in the world of small and midsize businesses than to try to address this segment of the market on its own.
Two cherries on top for shareholders
CrowdStrike bears will point out the stock's lofty price-to-sales (P/S) valuation of about 14, as of this writing. Indeed, that's expensive and means the company needs to generate above-average growth for a long time. And fortunately, it has been growing nicely, with fiscal 2023 revenue up 54% compared to fiscal 2022.
CRWD PS Ratio data by YCharts. YoY = year over year.
For fiscal 2024, management is guiding for about 34% year-over-year revenue growth, slower than in fiscal 2023 but still better than most companies. But here's the first cherry on top for shareholders when it comes to its partnership with Dell: Management's revenue guidance doesn't include any upside from its Dell deal, so anything it gets from the deal will only help it beat its guidance.
Here's the second cherry: The cybersecurity space is competitive, and on Jan. 17, CrowdStrike announced it lured two executives away from competitor SentinelOne, including new chief business officer Daniel Bernard. Kurtz appeared to at least give part of the credit to Bernard and his past relationship with Dell in securing that important partnership.
I don't believe there will be a single winner in cybersecurity -- SentinelOne and CrowdStrike could both be long-term winners. But the latter's deal with Dell shows incredible potential in its ability to grow revenue from small and midsize enterprise clients, something not reflected in its guidance right now. And it secured this deal -- instead of letting it go to a competitor -- by stealing its rival's talent, which makes the news far more meaningful to me.
