If you had invested $10,000 in CrowdStrike's (CRWD +1.37%) initial public offering (IPO) in June 2019, your shares would be worth nearly $88,000 today. The cybersecurity company impressed the market with the rapid growth of its cloud-native platform.
CrowdStrike's 777% rally crushed the First Trust Nasdaq Cybersecurity ETF's 111% gain during the same period. But it still wouldn't have turned you into a millionaire on its own, unless you'd invested $114,000 at its IPO.
Image source: Getty Images.
Could CrowdStrike still generate millionaire-making gains for investors who missed out on its gains over the past five years? Let's see how much a fresh $10,000 investment in CrowdStrike might grow over the next decade.
CrowdStrike's growth is cooling off
Many cybersecurity companies still run their services through on-site security systems, which are expensive, take up lots of space, consume lots of energy, and require regular maintenance. CrowdStrike's main security platform -- Falcon -- replaces all of those cumbersome on-site appliances with a subscription-based cloud-native service.
The stickiness of that ecosystem makes it easier for CrowdStrike to cross-sell more cloud-based modules to boost its average revenue per customer. At the end of fiscal 2024 (which ended this January), some 64% of its customers were using at least five of its modules -- compared to just 33% of its customers at the end of fiscal 2020.
That's why CrowdStrike has grown like a weed since its public debut. From fiscal 2020 to fiscal 2024, the company's number of subscription customers grew more than fivefold from 5,431 to 29,000. Its revenue rose at a compound annual growth rate (CAGR) of 59% and adjusted subscription gross margin expanded from 75% to 80%. It also turned profitable on a generally accepted accounting principles (GAAP) basis in fiscal 2024.
NASDAQ: CRWD
Key Data Points
Those numbers are impressive, but the company's growth is cooling off. It expects its revenue to only rise 27%-28% in fiscal 2025, compared to 36% growth in fiscal 2024 and 54% growth in fiscal 2023. That would mark its slowest annual growth since its IPO. Analysts expect its revenue to grow at a CAGR of 24% from fiscal 2024 to fiscal 2027.
That slowdown can be attributed to three major challenges. First, macro headwinds are driving a lot of companies to scrutinize their software spending. Second, CrowdStrike faces tough competition from more diversified cybersecurity companies like Palo Alto Networks and Fortinet, as well as smaller cloud and artificial intelligence (AI)-driven challengers like Zscaler and SentinelOne.
Lastly, CrowdStrike tarnished its brand with a flawed software update that triggered a global IT outage earlier this year. It already reduced its full-year guidance after the disaster, but that mistake could make it harder to gain new customers.
Could CrowdStrike churn out millionaire-making gains?
CrowdStrike's business is maturing, but the company still trades like a hypergrowth stock at 15x next year's sales and 76x forward non-GAAP earnings. On a GAAP basis, it looks even more expensive at 343x next year's earnings.
Palo Alto and Fortinet, which are growing slower than CrowdStrike, trade at a respective 53x and 33x their forward adjusted earnings. Zscaler, which is only growing slightly slower than CrowdStrike, has a lower forward price-to-earnings ratio (P/E) of 60.
It could be hard for CrowdStrike to maintain those premium valuations as its growth slows down. In an optimistic scenario, CrowdStrike could potentially grow its revenue at a CAGR of 20% from $3 billion in fiscal 2024 to $19 billion in fiscal 2034.
If CrowdStrike still trades at 15x sales by then, it would be worth $285 billion -- but that would only mark a near fourfold gain from its current market cap. That's a decent 10-year gain, but it would only turn $10,000 into about $40,000. That return could also be a lot less impressive if it continues to lose momentum and valuations decline.
For now, it doesn't seem likely CrowdStrike can generate millionaire-making gains. It's still a decent play on the secular expansion of the cybersecurity market, but investors should maintain realistic expectations for the company's long-term growth potential.
