Making money in the stock market is not that challenging, provided you pick up shares of high-quality, fundamentally strong companies that are riding secular trends.
For those looking to invest in such exceptional stocks, two standout companies -- CrowdStrike (CRWD 2.03%) and Confluent (CFLT 2.98%) -- are poised for remarkable growth. Both companies are leaders in their respective niches and are targeting large addressable markets.
Here's why these companies can be smart picks for patient investors in 2024.
CrowdStrike
Leading endpoint security player CrowdStrike's cutting-edge cloud-native Falcon platform helps organizations proactively protect their devices and network access points from real-time threats and malicious actors. Additionally, the multi-modular Falcon platform (comprising 27 modules) also offers other real-time security services including cloud security, observability, identity and data protection, and threat intelligence.
CrowdStrike uses its AI-powered Threat Graph technology to process trillions of cyber threat-related data points weekly and train the Falcon platform. Subsequently, endpoint security data collected from any one client is leveraged to offer enhanced protection to the entire customer base. This has created a powerful network effect, wherein any new client addition helps strengthen the Falcon platform -- which in turn helps attract more customers.
CrowdStrike reported a record net new annual recurring revenue of $223 million in the third quarter (ended Oct. 31), up 13% on a year-over-year basis. This growth was driven by new customer acquisition across different segments, from large enterprises to small businesses as well as successful cross-selling initiatives among existing customers. Since subscriptions account for nearly 93% of the company's total revenue, CrowdStrike also enjoys a high degree of revenue visibility.
With businesses increasingly preferring a single security platform over multiple-point solutions, a significant number of the company's subscription customers are opting for multiple Falcon modules. In the third quarter, customers using five or more, six or more, and seven or more modules represented 63%, 42%, and 26% of the subscription customers, respectively. The increasing integration of CrowdStrike's modules into the clients' daily operations has also ensured a highly sticky customer base.
Trading at 26.3 times trailing-12-month sales, a little lower than its five-year average price-to-sales ratio of 28 times, CrowdStrike stock is not cheap. However, considering the mission-critical nature of cybersecurity and the company's improving operational trends, CrowdStrike seems a worthwhile pick now.
Confluent
Confluent helps enterprises make informed decisions based on real-time data collected across multiple sources, using its cutting-edge Apache Kafka-based data streaming platform. This marks a major departure from the conventional approach to data analytics, where data is first collected and then analyzed at a later date. Confluent's platform differentiates itself from the open-source Apache Kakfa with its focus on connectors, stream processing, and governance -- thereby enabling organizations to extract maximum value from their real-time data streams.
Furthermore, the integration of Flink stream processing technology with the underlying data stream on Confluent's platform has further enabled the company to offer a coherent product on a single system, optimized for security, data discoverability, and transactions. This combination has resulted in a more efficient and user-friendly experience -- both for developers and organizations.
Not surprisingly, Confluent has been attracting new customers at a very healthy pace. The company ended fiscal 2023 (ended Dec. 31) with 4,960 customers, up 9% on a year-over-year basis. Additionally, high-value customers contributing annual recurring revenue of $100,000 or more rose even faster, at 21% year over year to 1,229 at the end of fiscal 2023.
Confluent's revenue rose by 33% year over year to $777 million in fiscal 2023. Particularly noteworthy was the 65% year-over-year growth in Confluent Cloud revenue to $348.8 million, which is also the fastest-growing part of the company's business. The company has also revamped the go-to-market strategy for its cloud business by aligning the compensation of the sales team with new customer acquisition and increasing consumption trends. It has also aligned product and pricing to simplify customer expansion.
Confluent is also targeting its first breakeven year for non-GAAP (generally accepted accounting principles) operating margin and free-cash-flow margin in fiscal 2024. Hence, although it's not yet profitable, the company's solid business model and improving financials position it as an attractive growth stock for 2024.
