Over the week, CrowdStrike Holdings (NASDAQ:CRWD) flatlined its returns at 0.5% gains. However, today’s price correction masks the 4.5% price spike from Friday to Monday. The cloud-based cybersecurity firm received the attention of Morgan Stanley analysts, having noted that its market cap could reach $100 billion during the next 12 months.
This would mark an 18% gain for CRWD shareholders from its current market cap of $84.50 billion. Moreover, Morgan Stanley analyst Hamza Fodderwala noted that CrowdStrike’s value is positioned to nearly double in the next five years. This optimistic assessment is based on the growing adoption of cloud-based security and identity protection.
Year-to-date, CRWD stock gained 42% value. Should investors take advantage of the current price correction ahead of earnings ending April 2024, scheduled for June 4th?
CrowdStrike’s Key Product Explained
The firm’s core revenue generator is the CrowdStrike Falcon platform. The company receives a stable stream of subscription fees through its different cybersecurity modules. The Falcon platform offers comprehensive, cloud-native endpoint protection.
The latter jargon is important to understand as “cloud-native” and “endpoint” means that all services can be accessed with internet access alone, without the dependency on localized hardware or connectivity. Conversely, CrowdStrike’s infrastructure is in charge of data management in key aspects – vulnerability prevention and restoration.
In other words, cloud-native flexibility translates to scalable and easily deployable cybersecurity for customers. With the introduction of AI algorithms to learn from collected data, CrowdStrike also benefits from the network effect. The more subscribers the firm attracts, the more agile AI becomes in preventing and hunting down cybersecurity threats.
The company summarized its next-gen Security Information and Event Management (SIEM) as a continually reinforcing loop between data inflows, detection, analysis, and response.
Although Microsoft (NASDAQ:MSFT) Defender has drastically curtailed the need for specialized cybersecurity suits, CrowdStrike is intended for businesses needing 24/7 monitoring and response rather than for regular users.
CrowdStrike’s Total Addressable Market
In 2023, the FBI’s Internet Crime Complaint Center reported $12.5 billion in potential losses from cyber-attacks, a 22% uptick from 2022. This aligns with Apple’s in-house study, which showed 20% more breaches in the first nine months of 2023 than in 2022.
From identity theft, investment scams, and IP theft to fraud, embezzlement, and workflow disruptions, Cybersecurity Ventures forecasted $9.5 trillion in damages globally during 2024, to increase to $10.5 trillion by 2025. For comparison, that is a greater loss of wealth than during natural disasters typical during any given year.
According to the Mordor Intelligence report, this places the demand for cybersecurity products at a CAGR of 11.44%, growing from $182.84 billion in 2024 to an expected $314.28 billion by 2029. If Morgan Stanley’s forecast for CrowdStrike’s market cap to reach $100 billion over the next 12 months is to prove correct, that would place the firm as the dominating cybersecurity player.
CrowdStrike’s Competition
In the arena of cloud-native end-point protection, CrowdStrike faces strong competition from Microsoft. Beyond the baseline Defender included in Windows, Microsoft offers Defender for Endpoint in its premium Windows OS edition, integrated with Microsoft Defender for Cloud to monitor Windows Servers.
Microsoft’s cybersecurity ecosystem relies on Azure cloud infrastructure. For fiscal Q3 2024, Microsoft reported 21% YoY Intelligent Cloud revenue growth to $26.7 billion. CrowdStrike’s other competitive products from publicly traded companies include Carbon Black from VMware (NYSE:VMW), Cylance from BlackBerry Limited (NYSE:BB), Symantec (NASDAQ:GEN) from Broadcom (NASDAQ:AVGO) and SentinelOne from SentinelOne (NYSE:S).
Of the bunch, CRWD stock outperformed them significantly at 42% YTD performance, with Broadcom (29%) and Microsoft (15%) trailing the closest. Regarding actual market share in the endpoint cybersecurity market, CrowdStrike holds 23.88% of the pie as number one, followed by McAfee ePO (19%) and SentinelOne (9.59%).
Investors should note that McAfee (previously trading under MCFE on Nasdaq) is not a publicly traded company following Advent International Corporation’s acquisition in March 2022.
CrowdStrike’s Financials
In the latest earnings report ending January 2024, CrowdStrike reported 34% YoY annual recurring revenue (ARR) growth to $3.44 billion. For the quarter, subscription revenue was up 33% to $795.9 billion out of a total of $845.4 million, once again confirming subscriptions as the company’s bread and butter.
Compared to a year-ago net loss of $47.5 million, CrowdStrike delivered $53.7 million net income. The positive profitable zone is relatively new for the company, achieving the first profitable quarter in Q2 2023, followed by rising profitability. For the last four consecutive quarters, CrowdStrike beat earnings per share (EPS) estimates, with the latest at a surprise of 33% ($0.24 reported vs $0.18 expected).
The company ended January 2024 with $3.47 billion in cash and cash equivalents, against $779 million in long-term debt and capital lease obligations. This puts the company’s debt-to-equity ratio at a low 0.3 range.
Overall, CrowdStrike is seeing strong cybersecurity adoption, with Falcon modules’ subscription rates in double-digit ranges, from 64% to 27%. This will likely continue, given its leverage on AI and the aforementioned network effect.
CrowdStrike Price Targets
According to 44 analyst inputs pulled by Nasdaq, CRWD stock is a “strong buy” twelve months ahead. The average CRWD price target is $399.39 vs. the current $351.47 per share. The low estimate aligns with the present price of $350, while the high ceiling costs $435 per share.
CRWD shares reached an all-time high of $351.47 on May 24th. Their 52-week low point was $139.37, 60% under the current level. From the present price-to-earnings (P/E) ratio of 702, CRWD shares are estimated to reach a P/E of 313 in 2025. For comparison, Tesla’s current P/E is 68.94, despite mishaps and aggressive push from Chinese EV automakers.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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