The growing demand for cybersecurity solutions and the outstanding growth that CrowdStrike (CRWD 2.03%) has been delivering thanks to the rapid adoption of its offerings have helped the stock clock impressive gains of more than 53% on the market this year, and the company's latest results suggest that its rally is here to stay.
Last week, CrowdStrike released fiscal 2024 second-quarter results for the three months ended July 31. The cybersecurity specialist delivered impressive year-over-year growth in revenue and earnings that easily bested Wall Street's expectations and its own guidance. Even better, CrowdStrike has raised its full-year revenue and earnings estimates.
Let's take a closer look at what's driving CrowdStrike's tremendous growth before finding out if investors should consider buying the stock following its impressive gains this year.
Customers are spending more money
CrowdStrike's quarterly revenue increased 37% year over year last quarter to $732 million, beating the consensus estimate of $724 million. The company's non-GAAP earnings, meanwhile, more than doubled year over year to $0.74 per share from $0.36 per share in the same period last year. Analysts would have settled for $0.56 per share in earnings, but the company crushed that mark thanks to robust spending by customers on its offerings.
CrowdStrike reported a dollar-based net retention rate of 120% last quarter. This metric compares a company's annual recurring revenue from its subscription customers during a quarter to the revenue from the same set of customers in the prior-year period. So a reading of more than 100% in this metric suggests that customers adopted more of CrowdStrike's services or extended usage of existing products.
This is evident from the fact that the number of subscription customers using five or more of CrowdStrike's cybersecurity modules increased to 63% last quarter, up from 59% in the same period last year. The increased customer spending positively impacted CrowdStrike's margin profile as well. The company finished the quarter with an adjusted gross margin of 80% from the subscription business, which accounted for 94% of its top line. That was a two-percentage-point improvement over the prior-year period.
Encouraged by the robust customer spending momentum, CrowdStrike now expects earnings to land between $2.80 and $2.84 per share in fiscal 2024. That's a big improvement over its earlier estimate of $2.32 to $2.43 per share. The company anticipates revenue of roughly $3.04 billion at the midpoint of its guidance range. CrowdStrike's updated guidance indicates that the company is anticipating an 83% surge in earnings on a 36% jump in revenue in the current fiscal year.
On track to deliver solid long-term growth
It wouldn't be surprising to see the company delivering stronger growth thanks to a huge addressable market and the growing adoption of technologies such as artificial intelligence (AI).
CrowdStrike estimates that it has a total addressable market (TAM) worth $76 billion currently, which means that it hasn't cornered even 5% of the opportunity on offer. The company projects that its TAM could jump to a whopping $158 billion in 2026 based on its future product roadmap and the organic growth of the cybersecurity market.
At the same time, CrowdStrike is looking to take advantage of the fast-growing integration of AI within cybersecurity solutions. According to third-party estimates, the usage of AI in the cybersecurity market is anticipated to increase at an annual pace of 24% through the end of the decade, generating annual revenue of $94 billion in 2030.
CrowdStrike has already set the wheels in motion to capitalize on this opportunity with the Charlotte AI platform. Charlotte is a generative AI-powered security module that allows CrowdStrike's customers to "do more in the platform by automating workflows, which fuels module adoption and reduces the mean time to detect and respond."
Not surprisingly, analysts anticipate CrowdStrike to deliver consistently solid growth for the next couple of fiscal years as well, and they have raised their expectations substantially, as the following chart indicates.
CRWD Revenue Estimates for Current Fiscal Year data by YCharts
What's more, the company's earnings are expected to increase at an annual rate of 39% for the next five years. All this indicates that CrowdStrike still has a lot of room for growth going forward, which is why investors might still want to consider buying this cybersecurity stock.
They will have to pay a hefty 14 times sales to buy the stock. But CrowdStrike seems capable of justifying this valuation thanks to its impressive growth and its presence in lucrative niches such as AI, which is why growth-oriented investors can consider overlooking the rich sales multiple.
