CrowdStrike (CRWD 3.69%) took a hit during the tech sector meltdown. Shares are more than 60% down from their late 2021 peak.
However, CrowdStrike is a better company today than it was when stocks were at their peak. The cybersecurity company’s strategy of harnessing the power of the cloud and artificial intelligence (AI) is fueling rapid growth that’s unlikely to stop anytime soon. Therefore, I couldn’t resist taking advantage of the lower price to add more shares to my portfolio.
AI-powered growth
CrowdStrike built its Falcon platform to reinvent network security for the cloud age. The cloud-based platform collects 2 trillion data points every day, making its AI technology smarter when it detects anomalies in the data. This approach helps stop the most sophisticated threats. In third-party testing, the company’s platform achieved 100% ransomware prevention with no false positives. According to comments from co-founder and CEO George Kurtz on last quarter’s earnings call, this “reflects our superior AI and machine learning models and the data mode advantage we’re taking from our unique graph technology.”
Clients flock to its cutting-edge AI-powered platform. CrowdStrike’s customer base has grown by 44% over the past year to over 21,000. Many customers initially subscribe to some of the 23 modules to test their skills. Most are staying with the company — its retention rate has been over 97.4% over the past year — and building that relationship (net dollar-based retention has been over 120% in recent years). Today, around 60% of customers subscribe to five or more modules. However, only about 21% signed up for seven or more, giving CrowdStrike plenty of room to expand within its existing customer base.
These drivers help deliver tremendous sales and profit growth rates. CrowdStrike revenue increased 53% to $580.9 million in the fiscal third quarter, while non-GAAP (adjusted) net income more than doubled to $96.1 million. The company also reported robust free cash flow of $174.1 million, growing its year-to-date total to $467 million, up 49% year over year. This increased the company’s cash position to $2.47 billion with just $741 million in debt.
A huge opportunity
CrowdStrike believes it’s barely scratching the surface of its Total Addressable Market (TAM) opportunity:
Image source: CrowdStrike Investor Relations presentation.
As this slide shows, the TAM for CrowdStrike’s current product portfolio is $76.1 billion, with organic market growth continuing to expand its TAM over the next two years. Meanwhile, product roadmap, future initiatives and cloud security opportunity are expected to increase the company’s TAM to $158 billion by 2026. With annual recurring revenue currently in excess of $2 billion, CrowdStrike has plenty of room to grow.
Growing free cash flow and a liquid balance sheet give the company the flexibility to continue investing in innovation, in part through strategic acquisitions. Last year, CrowdStrike agreed to acquire Reposify to expand its threat intelligence, security, and IT operations product suites. Meanwhile, in 2021, the company acquired SecureCircle to expand into the data protection market and Humio to provide the industry’s most advanced platform for index-free next-generation XDR (Extended Detection and Response) capabilities. These investments will help drive rapid growth in its emerging product category and improve its ability to attract new customers, retain existing ones and grow relationships.
A premium AI stock at a compelling price
The sell-off in the tech sector weighed on CrowdStrike shares. While not exactly a bargain, I couldn’t resist the opportunity to buy more shares now that they’re trading at a much lower price. I think the company has tremendous upside potential over the very long term as it harnesses the power of AI to secure the cloud.
