CrowdStrike (CRWD 0.38%) has generated big gains since its public debut in June 2019. The cybersecurity company went public at $34 with a valuation of $6.7 billion, and it now trades at about $300 with a market cap of $70 billion.
The bulls loved CrowdStrike because it was disrupting older cybersecurity companies with its cloud-native services, which locked its customers into sticky subscriptions and eliminated the need for on-site appliances. From fiscal 2020 (which ended in Jan. 2020) to fiscal 2023, its annual revenue grew at a compound annual growth rate (CAGR) of 67% as its total number of subscription customers more than quadrupled from 5,431 to 23,019.
Those breakneck growth rates are impressive, but could CrowdStrike continue expanding and become a trillion-dollar company by 2040? Let's review its business model to see if it has a shot at joining the four-comma club.
Image source: Getty Images.
CrowdStrike's hypergrowth days could be over
Analysts expect CrowdStrike's revenue to rise 36% in fiscal 2024, 29% in fiscal 2025, and 26% in fiscal 2026. We should take those estimates with a grain of salt, but they suggest its business is maturing as it faces more competitors.
For example, Palo Alto Networks (PANW 0.85%) is expanding into the cloud security market with Prisma, Microsoft is rolling out more first-party cybersecurity services for its cloud-based ecosystem, Cisco is integrating more cybersecurity services into its own networking equipment, and its smaller challenger SentinelOne is trying to automate the entire threat detection process with AI algorithms across a hybrid mix of on-site appliances and cloud-based services.
The cloud-native network security market could expand at a CAGR of 14% from 2024 to 2029, according to Global Market Estimates. Mordor Intelligence expects the cloud endpoint security market -- where CrowdStrike's Falcon mainly operates -- to grow at a CAGR of only 12% during the same period.
NASDAQ: CRWD
Key Data Points
CrowdStrike might continue to grow faster than the broader industry as it expands its ecosystem and gobbles up its smaller competitors, but it probably can't replicate its hypergrowth rates from fiscal 2020 to fiscal 2023. That gradual slowdown could be worrisome for a stock that already trades at 23 times next year's sales.
How fast will CrowdStrike grow over the next 16 years?
If CrowdStrike grows its top line at a CAGR of 20% from 2023 to 2040, its annual revenue will rise from $2.2 billion to $50 billion. If it's still trading at 20 times sales by then, its market cap could hit $1 trillion. That said, it would need to play its cards nearly perfectly to maintain that high growth rate and premium valuation.
With a more conservative CAGR of 15% -- which seems more realistic as it faces tougher competitive challenges and unpredictable macro headwinds -- its revenue would reach $24 billion by 2040. If it's trading at a more reasonable 10 times sales, which would be comparable to Palo Alto Networks' current price-to-sales ratio, it could be worth about $240 billion.
Focus on these core growth metrics instead
Simply put, CrowdStrike has a narrow but viable path toward hitting a trillion-dollar valuation by 2040 -- but it could easily fall short of that lofty target as its growth cools off.
So instead of wondering if CrowdStrike will ever become a trillion-dollar company, investors should focus on its growth in customers and their increased adoption of its cloud modules instead. In its latest quarter, 42% of its customers were using at least six of its modules, compared to 36% of its customers a year ago. It's also remained profitable on a generally accepted accounting principles (GAAP) basis for three consecutive quarters as it reined in its spending and stock-based compensation.
Those fundamental improvements indicate its ecosystem is sticky and that it still has plenty of pricing power in the crowded cybersecurity market. So as a long-term investor in CrowdStrike, I believe it could still easily generate more multibagger gains over the next two decades -- and I'm not concerned about its ability to join the 12-zero club in the distant future.
