CrowdStrike's (CRWD 3.86%) stock surged 24% during after hours trading on March 5 following the release of its latest earnings report. For the fourth quarter of fiscal 2024, which ended on Jan. 30, the cloud-based cybersecurity company's revenue rose 33% year over year to $845.3 million and surpassed analysts' expectations by $5.3 million.
Its adjusted net income grew 112% to $236.2 million, or $0.95 per share, which also cleared the consensus forecast by $0.13. On a generally accepted accounting principles (GAAP) basis, it posted a net profit of $53.7 million -- which marked its fourth consecutive quarter of GAAP profitability and a big improvement from its net loss of $47.5 million a year ago. Those headline numbers looked healthy, but can CrowdStrike's stock head even higher over the next 12 months?
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CrowdStrike is still growing rapidly
Many cybersecurity companies still install on-site appliances, which generally take up a lot of room, require constant maintenance, and are expensive to scale. CrowdStrike addresses those issues with Falcon, a cloud-native endpoint security platform that doesn't require any appliances at all.
That disruptive approach has enabled CrowdStrike to grow like a weed since its IPO in 2019. From fiscal 2019 (which ended in January 2019) to fiscal 2024, its revenue rose at a compound annual growth rate (CAGR) of 65% as its ending annual recurring revenue (ARR) increased at a CAGR of 62%.
NASDAQ: CRWD
Key Data Points
But in fiscal 2024 its revenue only rose 36% -- compared to its 54% growth in fiscal 2023 and 66% growth in fiscal 2022. It largely attributed that slowdown to the macro headwinds, which made it more challenging to lock in new customers. As a result, its net new ARR (from new customers) declined year over year in the first half of fiscal 2024.
Those declines caused the bears to claim that CrowdStrike's high-growth days were over, and its stock sank to its 52-week low last May. But in the second half of fiscal 2024, its growth in net new ARR turned positive and accelerated again.
|
Metric |
Q4 2023 |
Q1 2024 |
Q2 2024 |
Q3 2024 |
Q4 2024 |
|---|---|---|---|---|---|
|
Ending ARR Growth (YOY) |
48% |
42% |
37% |
35% |
34% |
|
Net New ARR Growth (YOY) |
2% |
(8%) |
(10%) |
13% |
27% |
|
Revenue Growth (YOY) |
48% |
42% |
37% |
35% |
33% |
Data source: CrowdStrike. YOY = Year over year.
It attributed that acceleration to its market share growth, its acquisitions of new government clients, and the expansion of its XDR (extended detection and response) platform with more generative AI features. At the end of fiscal 2024, 43% of its customers had adopted at least six of its cloud-based modules (up from its starting set of four modules), compared to 39% at the end of fiscal 2023. Its percentage of customers using at least seven modules rose from 22% to 27%.
CrowdStrike continues to expand its ecosystem through acquisitions. It recently agreed to buy Flow Security, a provider of cloud data runtime solutions, for an undisclosed sum in a deal that will close in the first quarter of fiscal 2025. During the conference call, CEO George Kurtz said the integration of Flow's tools would strengthen its native data protection module and help Falcon stop data breaches on both the "code to application" and "device to cloud" levels.
A bright outlook for fiscal 2025
CrowdStrike expects its revenue to rise 30%-31% year over year in the first quarter of fiscal 2025, and to increase 28%-31% for the full year. Its growth is gradually cooling off as its business matures, but it's still expanding faster than its larger and more diversified rival Palo Alto Networks -- which just offered a grim outlook for the coming year as it tries to unify its platform against smaller stand-alone cybersecurity services. Palo Alto expects its revenue to only rise 15%-16% in fiscal 2025 (which ends this July).
CrowdStrike's adjusted gross margin also expanded two percentage points to 78% in fiscal 2024, which indicates it still has plenty of pricing power in the cloud-native market, and its adjusted operating margin rose six percentage points to 22% as it scaled up its business and streamlined its spending. It also plans to stay profitable on a GAAP basis. It expects its adjusted EPS to rise 56%-58% year over year in the first quarter of fiscal 2025, and to grow 22%-28% for the full year.
Where will CrowdStrike's stock be in a year?
Based on those expectations and its current price of $368 per share, CrowdStrike's stock doesn't look cheap at 95 times forward earnings and 22 times this year's sales. Its early-mover's advantage in the cloud-native market and its robust growth rates might justify those premium valuations, but they could limit its upside potential this year.
I believe CrowdStrike is still a great long-term investment on the cloud, AI, and cybersecurity markets, but investors should only expect moderate gains this year as its business catches up to its valuations. It might keep pace with the market, but investors should still brace for a few volatile swings if falls short of Wall Street's rising expectations.
