The trend toward digitization has changed the global economy forever. It has made the world a smaller place by connecting businesses with employees and customers, no matter the country in which they might be located, and that has created endless opportunities.
But it also created substantial risks. Hosting valuable data, assets, and applications online made businesses more vulnerable than ever to cyber threats, which can impose significant financial and reputational harm.
Palo Alto Networks says ransomware attacks -- which seek to extort businesses for money by taking their networks hostage -- are up 37% so far in 2023. Plus, hackers only need an average of two days to exfiltrate (steal) a company's data, whereas it took nine days just a couple of years ago.
CrowdStrike (CRWD 2.03%) is one of the leading providers of cybersecurity designed to prevent such attacks, and it relies heavily on artificial intelligence (AI) to do so. The company is growing quickly and profitably, and when investors look back on this moment in a few years, here's why they will wish they had bought its stock today.
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CrowdStrike is an endpoint protection specialist
Employees are the most vulnerable part of any organization that uses a cloud-based online network because their jobs usually require them to interact with the outside world. Every email, message, phone call, and even online purchase is an opportunity for malicious actors to exploit staff members.
In fact, CrowdStrike says 90% of successful cyberattacks and 70% of successful data breaches originate at the endpoint, which is a device or computer used by an employee. Attackers are even using generative AI to craft convincing email and message content to trick them into clicking malicious links.
CrowdStrike specializes in protecting the endpoint. It processes 2 trillion security events per day, which becomes valuable data with which to train its own AI models for advanced, automated protection. Employees within an organization can't be expected to be cybersecurity experts, so they need a platform capable of detecting and eliminating threats in the background.
CrowdStrike's customers love the platform because it is practically invisible to each individual user. It's easy to install, doesn't interfere with the course of business, and has an intuitive user interface for security operations managers.
On that note, CrowdStrike also released a generative AI tool called Charlotte earlier this year. It integrates with every segment of the Falcon stack and adds several unique capabilities. Charlotte can operate any function within the CrowdStrike platform with a simple prompt, so even novice cybersecurity managers can squeeze the most out of it. It can also provide real-time insights into an organization's security posture, with recommendations on ways to improve.
CrowdStrike just delivered its third consecutive quarterly profit
CrowdStrike just reported its financial results for the fiscal 2024 third quarter (ended Oct. 31). The company delivered a record-high $786 million, representing a 35% increase compared to the same period last year.
But that growth rate has steadily trended downward over the past year for several reasons. First, the challenging economic environment forced businesses to spend less money, even on crucial items like cybersecurity. Second, CrowdStrike is carefully managing its operating costs after years of investing heavily in growth at the expense of profitability.
The company's operating costs only increased by 22% year over year in Q3 (marketing costs grew by an even slower 19%). Considering revenue grew by 35% year over year, that allowed more money to flow to the bottom line. As a result, CrowdStrike delivered a net income (profit) of $26.7 million, a huge swing from the $54.6 million net loss it generated in the year-ago period.
The company has now been profitable in all three quarters of fiscal 2024 so far, which proves it can successfully maintain strong top-line growth without burning significant amounts of cash. This path will make the business more sustainable over the long term.
Why CrowdStrike stock is a buy today
CrowdStrike ended Q3 with $3.1 billion in annual recurring revenue, but that's a fraction of what it estimates could be a $100 billion total addressable opportunity in calendar year 2024. Endpoint security is the largest piece of that pie, representing $19 billion.
But cybersecurity demand will likely explode in the coming years as threats become more sophisticated through new technologies like AI. Research firm McKinsey thinks the corporate sector should be spending $2 trillion annually on cybersecurity software right now, yet it's on track to spend just $189 billion this year.
By 2025, McKinsey predicts the damage caused by cyberattacks will top $10.5 trillion per year, and as that bill grows, the cybersecurity software spending gap is likely to close.
That's an enormous opportunity for leading providers like CrowdStrike, and when investors look back on this moment a few years from now, they might wish they went along for the ride.
