Shares of cybersecurity software leader CrowdStrike Holdings (CRWD 2.03%) rallied 34.1% in November, according to data from S&P Global Market Intelligence.
CrowdStrike is a leader in cloud-based and artificial-intelligence-based cybersecurity software, and the recent period of vendor consolidation and emphasis on new artificial intelligence (AI) tools appears to be playing in its favor.
In addition to its great earnings report on Nov. 28, CrowdStrike also benefited from two positive inflation reports that came in softer than expected, helping the long-term Treasury bond rate fall from its October highs. That helped most high-priced growth stocks like CrowdStrike and others surge higher.
CrowdStrike is outperforming peers
In its third quarter, revenue grew 35% to $786 million, with adjusted earnings per share of $0.82, with both metrics handily beating analyst expectations. Another measure that CrowdStrike often points to as a good barometer -- annualized recurring revenue -- reached $3.15 billion, also up 35% year over year. And free cash flow surged 37.1% to $239 million, giving the company flexibility to invest through this softer economy.
But what really impressed this investor was that operating income under generally accepted accounting principles (GAAP) -- which includes the high stock-based compensation many software companies pay employees as a real cost -- actually turned positive as well at $3.2 million.
Many software-as-a-service (SaaS) businesses don't operate at GAAP profitability, and I'm usually skeptical of many SaaS companies' non-GAAP (adjusted) numbers. Even free cash flow, usually a favored barometer of value investors, doesn't quite work for many software companies, as changes in deferred revenue paid up front usually boosts cash flow above actual profitability. So to see CrowdStrike growing that fast and also reaching GAAP operating profits was especially impressive.
The company's platform was purpose-built for the cloud and AI age, with its Falcon software attached to each endpoint, continuously sending customer data back to its centralized Threat Graph, which constantly improves the platform.
On the conference call with analysts, management talked about its perfect 100% industry rating in attack testing by the nonprofit security organization MITRE.
It also said data from research firm Canalys showed CrowdStrike as the No. 1 endpoint protection platform, ahead of well-known rivals Microsoft and Palo Alto Networks. And the company exceeded $1 billion is cumulative sales from the Amazon Web Services marketplace, the fastest cybersecurity firm to do so.
It is also adding new services and products to supplement its leading endpoint protection product, with the recent bolt-on acquisition of start-up Bionic last quarter.
The report was a nice way to end an already successful month, after CrowdStrike benefited from falling interest rates after two tame inflation reports mid-month. The reports from October came in below analyst expectations, and many technology growth stocks and others -- with the bulk of their profits out in the future -- surged.
CrowdStrike is on a hot streak
CrowdStrike is performing exceptionally well, and it's getting credit for it, now trading around 20 times sales -- getting within 20% of its 2021 highs. That's better than a lot of other software stocks that crashed and burned over the past two years.
With the company hitting GAAP profitability and an opportunity to become a dominant cybersecurity player in the age of AI, its growth prospects are also quite bright.
