Investors can be forgiven if they chose not to invest in the initial public offering (IPO) of CrowdStrike Holdings (CRWD +2.56%) in 2019, much less invest $5,000 at that time. This company is a cloud-based enterprise cybersecurity specialist. And most investors aren't well-versed on this subject.
In short, most investors don't know what it takes to be a good company in this space, which would have been a good reason not to buy CrowdStrike's IPO.
After all, cybersecurity companies don't have much room for error. A single, preventable breach can result in irreparable reputational damage. In other words, everything can seem hunky-dory until a bad actor exposes the shortcomings of a company's software. The subsequent hit to the business and, consequently, shareholders would be incredibly fast.
NASDAQ: CRWD
Key Data Points
Therefore, many investors likely shied away from CrowdStrike's IPO and didn't invest a substantial sum, such as $5,000. But it was rewarding for those who did invest. And for those who sat on the sidelines because of uncertainty, there may be enough information to make a more informed investing decision now, as I'll explain.
Why CrowdStrike is making investors money
Top-line growth and profitability are keys to CrowdStrike's rising stock price. And progress in these areas can be boiled down to three main components: customer growth, module growth (I'll explain in a moment), and growth in customer spend. Let's look at each in turn.
First, CrowdStrike is attracting customers hand over fist. The company had 2,500 subscription customers when it went public in 2019. Now, at the end of its fiscal 2024 (which ended on Jan. 31), it had more than 29,000 subscription customers. That's extraordinary growth.
Second, CrowdStrike has expanded the cybersecurity services it offers. Each software product is called a module, and customers buy individual modules based on their needs. When it went public, CrowdStrike offered only 10 modules. Now, it offers more than 20.
Third, CrowdStrike's customers are buying more modules on average now than they were a few years ago. The company didn't break this metric out when it went public. But, in its fiscal 2021, 63% of its customers were using five or more modules. By comparison, in its fiscal 2024, 64% of CrowdStrike's customers had five or more modules.
That may be only one percentage point on paper, but investors need to remember that CrowdStrike's customer base increased exponentially during this time. Therefore, growth in the adoption rate is a big deal.
CrowdStrike has grown customers, products, and customer spend, resulting in incredible revenue growth. Moreover, that scale led to impressive profitability, especially relative to its peers. Consequently, CrowdStrike is a much more valuable company today than when it went public. And for those who invested $5,000 back then, the investment is now worth nearly $26,000.
How CrowdStrike could make investors more money
I readily admit that I'm not a cybersecurity expert myself. But like Sherlock Holmes, I can look for clues as to whether CrowdStrike is an investable player in the space.
For starters, CrowdStrike is the recognized leader in the space. Third-party research group Gartner named the company the top company for both its ability to execute and for the completeness of its vision. This represents its fourth straight year at the top of the spectrum for vision. However, its ability to execute has gone up -- that's reassuring, and it's a spectacular third-party validation from a credible source.
Furthermore, CrowdStrike's customer retention rates bear mentioning. Its gross retention rate sits at 98%. And its net retention rate is even higher, considering customers keep buying more modules over time. Logically, they wouldn't do that unless the platform met their needs well.
Therefore, with its five-year public track record, there's strong evidence for believing CrowdStrike is a top cybersecurity stock worthy of an investment.
Looking ahead, CrowdStrike's customer base is still growing fast, with 26% growth in its fiscal 2024. The company's partnership with Dell paves a more efficient path to growth with small and medium-sized businesses in particular. And only about a quarter of its customers were using seven or more modules as of the end of its fiscal 2024. That means there's still plenty of upside if customers keep adding new modules as they've done in the past.
CrowdStrike stock turned $5,000 into $26,000 over the last five years. Investor returns might not be that good over the next five years. But based on what I've explained here, I believe CrowdStrike stock will keep making its investors money over the long haul.
