Shares of endpoint security platform CrowdStrike Holdings (CRWD 0.14%) have been in rally mode in 2023, and for good reason. As the company just demonstrated during its second quarter fiscal 2024 (the three months ended in July 2023), it's still growing fast and notching increases in profitability. That's exactly what investors are looking for these days in the wake of the pandemic and slowing economic growth.
But there are other factors to consider for CrowdStrike as artificial intelligence and consolidation of software vendors become top priorities in the business world. The company is in tip-top shape to deliver the goods, to customers and shareholders alike.
NASDAQ: CRWD
Key Data Points
A stellar quarter of efficiency gains
CrowdStrike reported second-quarter revenue and adjusted profitability above the guidance it provided three months ago. Revenue increased 37% year over year, and the loss from operations under generally accepted accounting principles (GAAP) narrowed to just $15.4 million, or an operating profit of $156 million on an adjusted basis.
Management's prioritization of profitable growth has been paying off, and it led to a big upgrade in full-year expectations. Revenue is now forecast to be up 36% from last year, landing in a range of $3.031 billion to $3.043 billion (previously $3.001 to $3.037 billion).
This makes CrowdStrike one of the largest pure-play cybersecurity companies in the world, passing up old incumbent Check Point Software and now trailing Palo Alto Networks and Fortinet.
Data by YCharts. TTM = trailing 12 months.
Full-year guidance for adjusted operating income was also raised, and it's now expected to be as much as $610.5 million (previously as much as $526 million). The company isn't using these cash profits to buy back stock yet, but it's making great progress. Management says it's on track to reach its goal of 30% free-cash-flow margins this year.
CrowdStrike will be a leader in a new AI era
For now, CrowdStrike is finding plenty of places to invest in its cybersecurity platform. Generative AI is all the rage right now, and the new chatbot-powered assistant and "security analyst" Charlotte AI was recently demonstrated by the company.
But this latest AI breakthrough is part of a broader dialogue around the need for a holistic cybersecurity platform that doesn't leave any gaps in an organization's security, as well as getting more done with less. CEO George Kurtz said on the last earnings call:
Organizations need better, faster, and more cost-effective protection for a digital society. Organizations need seamless, not stitched-together, automation to break down legacy data silos. Organizations need lower [total cost of ownership] and more efficient ROI-driven investment. The competitive battlefield of cybersecurity today reflects these realities, separating the wheat from the chaff: those who have platforms versus those with point products masquerading as platform stories. What was a market littered with dozens of companies is quickly consolidating to several vendors. Smaller, narrower point-product companies are being left behind.
CrowdStrike's Falcon platform, with various types of AI-powered automation woven throughout all the different modules, is ready to deliver. The revenue growth outperformance relative to other cybersecurity peers, in spite of CrowdStrike's now quite large size, is proof that customers are seeing the value and choosing to spend more on the various and expanding Falcon security modules -- from endpoint (for PCs, laptops, smartphones, and the like) to user-identity protection.
It all adds up to a best-in-class cybersecurity company, and a top cybersecurity stock, too. More progress on profitability is needed, but Kurtz and the top team have demonstrated their ability to balance growth with profit margin expansion. Shares currently trade for about 42 times trailing 12-month free cash flow.
It's a premium price tag, so there will be plenty of bumps in the road for this stock as a result. But for investors looking at cybersecurity as a secular growth trend for the next decade, CrowdStrike still looks like a solid dollar-cost averaging candidate to me here.
