CrowdStrike Just CRUSHED PaloAlto's Narrative | Here's What It Means | $CRWD Earnings Analysis
Summary
TLDRThe video script analyzes CrowdStrike's impressive fourth-quarter earnings report, which defied the industry concerns raised by Palo Alto Networks. Despite Palo Alto's warnings of pricing pressures, CrowdStrike showcased robust growth, with a 33% increase in revenue, doubling of earnings per share, and expanding margins. The company's subscription revenue and multi-product adoption solidified its platform strength and competitive advantage. While acknowledging CrowdStrike's lofty valuation, the analysis suggests the company's execution and potential for continued growth make its current pricing justifiable, provided it maintains its trajectory.
Takeaways
- 😄 CrowdStrike reported impressive Q4 earnings, with 33% revenue growth, strong margins, positive cash flow, and profitability on a non-GAAP basis.
- 🚀 CrowdStrike categorically denied industry-wide pricing and competitive pressures, contrary to Palo Alto Networks' claims.
- 🔐 The company is seeing increased adoption of its multi-product platform, with customers using more of its security solutions.
- 📈 Subscription revenue grew 33% year-over-year, with gross margins plateauing near 40% growth.
- 🤝 CrowdStrike's dollar-based net retention rate of 119% indicates strong customer retention and expansion.
- 💰 Management expects around 30% top-line growth for the current quarter and $4 billion in sales for the full year.
- 🔎 Key metrics to watch include multi-product usage, new customers, net new ARR, and free cash flow.
- 🧮 The stock's valuation appears expensive based on traditional metrics but could be justified if CrowdStrike achieves its target free cash flow margins.
- 📊 A reverse discounted cash flow model suggests CrowdStrike needs to grow free cash flow by around 25% annually for 10 years to justify the current stock price.
- 🚀 CrowdStrike's execution and growth potential, coupled with new product traction, suggest the stock's valuation may not be as expensive as it appears.
Q & A
What were the key financial highlights from CrowdStrike's Q4 FY2024 earnings report?
-CrowdStrike reported revenue growth of 33% to $845 million, beating estimates. Non-GAAP EPS was $0.95, more than double from the previous year. Gross margins expanded by nearly 300 basis points, while operating margins reached over 25% and net margins approached 30%.
How did CrowdStrike address concerns about pricing and competitive pressures raised by Palo Alto Networks?
-CrowdStrike categorically denied facing industry-wide pricing and competitive pressures. The company stated that it is not cutting prices or giving away products for free, as it has built its platform from the ground up.
What evidence did CrowdStrike provide to demonstrate its platform's success?
-The number of customers using at least five of CrowdStrike's tools increased by 30% year-over-year, while those using six or more tools grew by 39%, and those using seven or more tools increased by 55%. Additionally, the number of customers using eight or more tools more than doubled.
How did CrowdStrike's management guide for the upcoming quarter and fiscal year?
-For the current quarter, management expects around 30% top-line growth, slightly ahead of Wall Street estimates. For the full fiscal year, management guided for about $4 billion in sales, also slightly ahead of analyst expectations.
What key metrics should investors watch for CrowdStrike moving forward?
-Investors should keep an eye on the multi-product usage numbers, new customer growth, net new annual recurring revenue (ARR), and free cash flow generation.
How did the analyst evaluate CrowdStrike's valuation?
-The analyst used a reverse discounted cash flow model, inputting CrowdStrike's trailing 12-month free cash flow of $938 million and a terminal growth rate of 3%. To justify the current stock price, CrowdStrike would need to grow its free cash flow at 28-29% annually for 10 years.
What is the analyst's overall assessment of CrowdStrike's prospects?
-While acknowledging that CrowdStrike's stock is not cheap at current prices, the analyst believes it's possible that the company is not as expensive as it seems, given its potential to reach 38% free cash flow margins and continue executing well.
How does CrowdStrike's performance compare to Palo Alto Networks' concerns about the cybersecurity industry?
-CrowdStrike's strong financial results and platform success stand in contrast to Palo Alto Networks' warnings about pricing and competitive pressures in the cybersecurity industry.
What role does CrowdStrike's platform play in its competitive advantage?
-CrowdStrike's platform approach, which allows customers to consolidate multiple cybersecurity solutions under one vendor, creates switching costs and a data network effect, forming a competitive moat for the company.
How does the analyst view CrowdStrike's growth stage and potential for operating leverage?
-The analyst sees CrowdStrike as being in stage four of growth, where the focus will shift towards operating leverage, although that is not expected to kick in until the second half of the next fiscal year.
Outlines
📈 CrowdStrike's Q4 2024 Earnings Outperform Amid Cybersecurity Industry Concerns
The video discusses CrowdStrike's stellar Q4 2024 earnings report, which defied concerns about the cybersecurity industry raised by Palo Alto Networks' disappointing outlook. CrowdStrike reported a 33% year-over-year revenue growth, beating estimates, and strong profitability with expanding gross and operating margins. Key highlights include positive free cash flow, a robust balance sheet, multi-product adoption among customers, and a strong net retention rate of 119%, indicating customer loyalty and expansion.
🔍 Digging Into CrowdStrike's Key Performance Indicators
The video dives into CrowdStrike's key performance indicators (KPIs) using Fin Chat, a tool that provides insights not readily available elsewhere. The KPIs discussed include subscription revenue growth, gross margins for subscription products, and dollar-based net retention rate. These metrics showcase CrowdStrike's ability to maintain strong growth rates, high profitability, and customer retention/expansion, reinforcing the company's competitive advantages and platform-centric approach.
📊 Evaluating CrowdStrike's Valuation and Future Growth Prospects
The video explores CrowdStrike's valuation and future growth prospects. Traditional valuation metrics like price-to-earnings and price-to-free-cash-flow suggest an expensive valuation. However, a reverse discounted cash flow analysis shows that if CrowdStrike can maintain a 25% annual free cash flow growth rate for the next 10 years, reaching its targeted 38% free cash flow margin, the current valuation may be justified. The video acknowledges the high bar for growth but remains optimistic given CrowdStrike's execution, new product traction, and plateauing growth rates.
Mindmap
Keywords
💡Earnings
💡Outlook
💡Cybersecurity
💡Revenue
💡Margins
💡Free Cash Flow
💡Subscription Revenue
💡Dollar-Based Net Retention Rate
💡Multi-Product Usage
💡Valuation
Highlights
CrowdStrike categorically denied the pricing and competitive pressures faced by Palo Alto Networks, going point by point to show how that wasn't the case in the industry.
CrowdStrike's revenue grew by 33% year-over-year, beating both management's guidance and Wall Street's estimates.
CrowdStrike reported non-GAAP earnings per share of $0.95, more than double from the previous year and ahead of guidance.
CrowdStrike's gross margins expanded by almost 300 basis points, operating margins exploded to over 25%, and net margins are closing in on 30% on a non-GAAP basis.
CrowdStrike reported positive free cash flow, and the company became non-GAAP profitable for all of the previous four quarters.
CrowdStrike's balance sheet is in great shape with about $3.5 billion in cash and a little under $1 billion in debt.
CrowdStrike's subscription revenue grew by 33% year-over-year, and the growth rate is plateauing above 30%, a very good sign.
CrowdStrike's gross margins for subscription products grew by 38%, plateauing near 40% growth.
CrowdStrike reported a dollar-based net retention rate of 119%, meaning existing customers spent 19% more on average.
The number of CrowdStrike customers using at least five of its tools was up 30% year-over-year, six or more tools up 39%, and seven or more tools up 55%.
CrowdStrike is becoming an umbrella for companies to get the majority of their cybersecurity needs, with no lag from platformization.
CrowdStrike management expects about 30% top-line growth in the current quarter and about $4 billion in sales for the full year, slightly ahead of Wall Street estimates.
Key metrics to watch for CrowdStrike moving forward are multi-product usage, new customers, net new ARR, and free cash flow.
CrowdStrike's moat is widening, and the thesis is very much on track, but the question is whether the stock is getting pricey.
A reverse discounted cash flow model suggests CrowdStrike needs to grow its free cash flow by around 25% per year for 10 years to justify its current valuation, a high bar but potentially achievable given its current performance and growth trajectory.
Transcripts
two weeks ago Palo Alto networks came
out with earnings and its Outlook was
very disappointing with the company
talking about how there were pricing and
competitive pressures that were Weighing
on things and it dragged the entire
cyber security industry down and I
actually made a video on that which you
can see right here I've linked that in
the show notes below so crowd strike the
leader in especially endpoint security
but a number of other areas of cyber
security as well came out with earnings
today
and it categorically denied that this is
the case industrywide by going Point by
point and showing how that wasn't the
case and the industry I'm sorry and
investors love it with shares up over
20% as of this writing so what does this
mean for shareholders and the stock
let's spend the next 10 minutes trying
to figure that out my name is Brian
stoel as the time of this recording
crowd strike is going to be my number
one holding and want to give a shout out
to fin chat. for sponsoring today's
video more from them in just a minute so
this was crowd strike's fourth quarter
fiscal 2024 after tomorrow's open it'll
be in the ballpark of an 86 billion
company on the top line revenue was up
33% to 845 million that beat both
Management's guidance and wall Street's
estimates on a non-gaap basis earnings
per share of 95 cents was more than
double from last year and ahead of
managements and wall Street's guidance
looking at margins on a non-gaap basis
there was a lot to like gross margins
expanded by almost 300 basis points
operating margins exploded to over 25%
and net margins are closing in on 30%
again all on a non-gaap basis which does
not include stock based compensation
free cash flow continues to be positive
the company Net Income went up it is
worth noting they were also uh
profitable on a non-gaap basis for all
of the previous four quarters as well
the balance sheet is in great shape with
about three and a half billion in cash
and a little under 1 billion in debt so
nothing to worry about there let's go
down the income statement just to get a
lay of the land here now this is all on
a gap basis so it won't reflect the same
exact Dynamics but they're pretty close
total revenue up
33% the cost of that Revenue only up 19%
when the cost of your Revenue grows
slower than your Revenue that's great it
means your gross profit grows even
faster In Crowd strikes case up 38% and
it's also worth noting that operating
expenses including all of this
stock-based compensation was only up 16%
so 33% growth on the top line 38% growth
in gross profit and only 16% growth in
the operating expenses that's what led
the company to go from A Loss to a
profit uh in terms of operating income
now this does come at a cost that should
not be overlooked and that is uh
dilution the weighted average number of
diluted shares outstanding was up 5.4%
from the same time last year so that is
worth keeping an eye on but what else
happened during this quarter well for
that we're going to head on over to fin
chat. now crowd strike just came
finished their conference call less than
half an hour ago I'm going to go on over
to Fin chat. and show you how the most
most important figures which you can't
find anywhere else are already there if
you'd like to you can try it for free
but if you'd like to get a subscription
that has all the functionality I'm about
to show you click the link on the show
notes below and you'll get a 25% off
discount so I head on over to Fin chat.
and I type in our ticker symbol crwd
when I do I click on that and the tab
that is most useful for me is this one
right here segments and kpis because
these are stats that you're not going to
find anywhere else there's a couple that
I really want to focus on okay the first
subscription Revenue because that's what
this is all about subscription Revenue
continues to grow very nicely from about
2.1 billion to 2.9 billion and that's on
an annual basis we can also look at it
on a quarterly basis and we can also
look at the growth rates and by doing
that I can just click right here so what
we see is obviously it makes sense that
the growth has to slow over time in this
case uh subscription Revenue grew 33%
year-over-year for this quarter that's
the blue line right here the key is is
trying to make this slow down as slow as
possible and if you look at the last
three quarters it is really tailing out
and to start plateauing at above 30% is
a very good sign what if we look at
gross margins for subscription products
because because again gross profit is
what really counts here on the
subscription products if we look at
gross profit what we see again is that
growth remains awesome 38% growth which
we already covered in gross profit and
again we're plateauing at near 40%
growth now it won't stay that way
forever because it can't no company can
keep up those growth rates forever but
the fact that it's plateauing here is an
incredibly good sign one last one that I
want to just talk about real quick is
dollar ba dollar based net retention
we're going to look at that on an
annualized basis because right now the
company is only uh reporting that on an
annualized basis this one hasn't been
filled in yet but the company reported
it was
119% in other words crowd strike not
only held on to all of their customers
that they had last year at this point on
average even after you've got ch
but it got those existing customers to
spend 19% more per year so if they
didn't add any new customers they still
had 19% growth in revenue and not only
that but looking forward management said
that it should continue to be a
percentage or two point above or below
120% so this is a dynamic that's not
going anywhere anytime soon so that's
what you can get on finch. now there is
one other stat that I like to call out
because something that I track these
days management only provides it
annually but since this was the end of
the fourth quarter we have it they give
us the total number of customers and
then they give us the percentage of
those customers that use four or more
five or more six or more seven or more
of crowd strike's modules now this
matters for two reasons one it is proof
that crowd strike has optionality which
is the ability to create new products
that the market wants that's like
offense but also proves that crowd
strike has a moat because the more of
these solutions that a company uses the
easier their life becomes in dealing
with just one vendor and then we've got
a moot of not only switching costs but
in the cyber security realm because that
data is shared a network effect of data
and that is really important because
what we heard on the call over and over
again is that while Pao elto was talking
about platforma tization about how they
needed to cut prices and give products
away for free in order to get customers
to transition to their platform crowd
strike is saying we're getting huge
deals and we're not cutting prices at
all because we've built this as a
platform from day one here's the proof
the number of customers that are using
at least five of crowd strike's tools
was up 30% from the same time last year
the number using six or more was up 39%
the number using seven or more more was
up 55% and while we don't actually have
the number management did say the number
of customers using eight or more more
than doubled it is becoming an umbrella
that a company can go to to get the
majority of their cyber security needs
there is no lag from platforma tization
with crowd strike it is a growth
catalyst so what does management see
looking forward now did caution that
it's taking a somewhat conserv stance it
also let us know that it is going to be
hiring aggressively in the year ahead
but in the current quarter management
sees about 30% Top Line growth slightly
ahead of what Wall Street was estimating
and for the full year management sees
about $4 billion in sales slightly ahead
of what Wall Street was estimating so
with all this good news the question
then becomes what should we watch moving
forward well first look at that
multi-product usage now they don't give
us the total number of customers that
they have on a quarterly basis anymore
but they do provide if you read the
notes the percentage of customers with
five six seven and I bet soon eight plus
products also keep an eye on the new
areas that they're getting into like
identity I didn't call that out here but
they have new products that are really
taking off so keep an eye on that number
two new customers that's something we're
going to have to look for on an annual
basis but it still matters because those
customers are coming because they have a
One-Stop shop now for their cyber
security needs number three Net new AR
because the net new AR in this quarter
was a record and I want to keep an eye
on that number four free cash flow now
the company had about 938 million in
free cash flow now over the prior year
that was good for a 30.7 free cash flow
margin there is no doubt that the moat
is widening around this company and the
thesis is very much on track but look as
of tomorrow this is going to be my
number one holding it's not hard to see
why it does very well on my antifragile
frame workor but the question becomes is
this getting a little bit pricey now
well first we got to say well what stage
of of growth is this company in I think
they're in about stage four where
they're really going to focus on
operating leverage although even that's
not going to kick in till the second
half of next year so to look at
valuation again let's head back to fin
chat. now we can look at traditional
metrics like Gap priced earnings and
that's useless because on a gap basis
the company just became Gap profitable
but what if we look about forward priced
earnings well if we do that we've got a
company trading for about 90 times
forward earnings that's really expensive
but also not the greatest way to look at
it what if we look at price to free cash
flow oo still very expensive in the 80s
what if we look at forward price to free
cash flow well then it's a little bit
more reasonable at about 70 times
forward free cash flow but again that's
still really price
I would argue that the best way we can
do for a company that still has lots of
operating leverage ahead of it is a
reverse discounted cash flow model now
here's how this works you can get a copy
of this calculator in the show notes
below for free but what you do is you
input the ticker symbol
crwd now you input the free cash flow
over the trailing 12 months which was
938 million now in general I give a
terminal growth rate of 3% a discount
rate of 10% mean means I want Market
matching results over the next 10 years
now the stock is actually trading for
370 because this has all happened after
the market Clos it's got where it closed
at but what you got to do now is make
this growth rate increase until it gets
to about
370 so I can put that in and I can put
in about 27
28
29 wow all right so we're talking about
28 to 29% growth every year in free cash
flow for 10 years to justify today's
price make it a market matching result
now that seems crazy expensive crazy
expensive type of expensive where I'd be
like well maybe I do need to trim this
because after tomorrow this might be 12
13 14% of my
portfolio but it's worth pointing out
that management has made very clear that
it believes that it can have free cash
FL margins of 38% at a mature estate
well if you have 38% free cash flow
margins let's assume that you have that
today well then you would have about
1,200 $1.2 billion in free cash flow
maybe a little bit less but right in
that ballpark well if you had $1.2
billion dollar in free cash flow today
because you're already optimized for
that free cash flow margin well then how
fast you have to grow and here we get
about 24 25 about
25% so what does this all mean what it
means is that if crowd strike can reach
38% free cash flow margins by
2034 then it needs to grow its top line
by
25% per year for 10 years moving forward
that is a high bar but to that I think
that there's two things to remember
management is calling for growth of 29%
in in the in the current year and we
know that they've repeatedly beat those
estimates so let's say that they grow 30
31% we've also seen that that has been
plateauing we're not talking about a
company that is going like 70% growth
50% growth 30% growth 10% growth that's
not what we're talking about it's it's
it's it's at a much slower Plateau right
now and we're seeing these new products
like identity management really getting
traction with customers so my point is
is that while the I would never call
this stock cheap at its current prices I
also think it's entirely possible that
it's not quite as expensive as people
think don't get me wrong crowd strike
has to continue executing but based on
the information that we have I I see no
reason why they couldn't doesn't mean
that they can't slip up but they're
doing very very well now I'm not gonna
be getting any shares because it's
already a huge percentage of my
portfolio but if you want to follow
along and know what the most important
things to follow are click on that link
for fin chat. get 25% off let me know
what you think in the comment section
below and is this something where you
think crowd strike is clearly proven
that it is immune from the type of
things that Palo Alto talked about or is
this kind of oneoff in nature we'll
check back in on 90 days on this one
until that time comes Brian out
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