One of the hottest growth areas for technology investors is cybersecurity. The landscape is rife with applications ranging from combating hackers to preventing fraud. Endpoint security platform operator CrowdStrike (CRWD 2.03%) is a leader in the space, and its stock has handily beaten the S&P 500 over the last several years -- returning nearly 350% since its initial public offering in 2019.
With such an impressive performance, investors may be wondering if the coveted $1 trillion market cap club is in CrowdStrike's future. Let's look at the company's growth prospects and assess whether reaching a $1 trillion valuation by 2030 is reasonable.
CrowdStrike's potential is massive
CrowdStrike operates across a variety of end-markets within cybersecurity. These include applications such as data protection, threat intelligence, identity protection, cloud security, observability, managed services, IT operations, and endpoint security.
According to the company's estimates, these use cases combine for a total addressable market of $100 billion today. However, management expects the market to expand to $225 billion by 2028.
The forecasts above undermine just how enormous the cybersecurity market is -- and CrowdStrike appears to be well on its way to dominating it.
The results are impressive, but...
The table below illustrates the revenue and free-cash-flow trends for CrowdStrike over the last several quarters.
CRWD Revenue (Quarterly) data by YCharts.
One of the reasons CrowdStrike has enjoyed such robust revenue and cash flow acceleration is due to its ability to cross-sell. For example, during its third-quarter earnings call, management highlighted that the number of its clients using eight or more of its modules increased by 78% year over year during the period, which ended Oct. 31.
Not only does this augment the company's validation, but it underscores that customers are increasingly relying on CrowdStrike to provide most or all of their cybersecurity backbone -- as opposed to using disparate products and services from a number of vendors.
Image Source: Getty Images
$1 trillion by 2030 is too optimistic
CrowdStrike's management has stated that it would like the company to reach $10 billion in annual recurring revenue (ARR) within the next five to seven years. Currently, its ARR is slightly above $3 billion, so it would need to more than triple that by 2030 to meet this goal.
One thing worth noting is that ARR is not exactly the same as revenue reported on a generally accepted accounting principles (GAAP) basis. However, given the company's revenue guidance of $3.1 billion for fiscal 2024, it serves as a decent proxy for the company's revenue growth ambitions.
As of the time of this writing, CrowdStrike's market cap sits around $60 billion. To reach $1 trillion, the company would need to increase in value by nearly 17-fold in just six years. Assuming CrowdStrike can reach $10 billion in ARR by 2030 and using the company's five-year average price-to-sales (P/S) multiple of roughly 31, it's feasible that a market cap of about $310 billion could be within reach by the end of the decade.
That said, CrowdStrike is a growth stock and it trades with high volatility. For this reason, its valuation multiples are much higher than those of other businesses. While its long-term prospects are robust, there is a good possibility that the company's growth will eventually slow down as it evolves into a more mature enterprise. When that happens, its valuation multiples should normalize to lower levels, which would make it even harder for the company to achieve a $1 trillion valuation.
The total addressable market estimates above show that management expects the cybersecurity industry to grow at a compound annual rate of about 22.5%. The tailwinds fueling cybersecurity combined with the secular trends of generative AI and its prolific capabilities across industry sectors have me thinking that CrowdStrike's addressable market could very well grow even further in just the next few years.
So while attaining a $1 trillion valuation by 2030 is probably too tall of an order, there are still plenty of reasons to scoop up shares in CrowdStrike and hold for the long term.
