Driven by the massive enterprise shift to work-from-anywhere, cybersecurity has been one of the fastest rising segments within the software sector, which has gone on a massive rally since the market bottomed a year ago this week.
During that span, CrowdStrike (CRWD), which has seen its stock surge as much as 380% over the past year, has been one of the biggest beneficiaries of the increased cybersecurity demand. The company is set to report fourth quarter fiscal 2020 earnings after the closing bell Tuesday. CrowdStrike’s cloud-based endpoints protection application which leverages not only data from machine learning, but also artificial intelligence. Its impressive growth has been driven by a combination of factors.
Aside from a surge in new customer acquisitions, CrowdStrike continues to find ways to get its existing customers to add more features and functionality. But the recent selloff in tech stocks, driven by rising bond yields, have pressured the stay-at-home winners, including CrowdStrike, which has seen its stock fall almost 20% in the past thirty days. Aside from valuation concerns compared to peers such as Cisco Systems (CSCO) or Fortinet (FTNT), the market is re-assessing the company’s growth projections, particularly as vaccine distribution accelerates a return to normalcy.
For the three months that ended January, Wall Street expects the Sunnyvale, Calif.-based company to earn 8 cents per share on revenue of $250.44 million. This compares to the year-ago quarter when it lost 2 cents per share on revenue of $152.11 million. For the full year, earnings are expected to be 22 cents per share, up from the year-ago loss of 42 cents per share, while full-year revenue is expected to rise 78.7% year over year to $860.17 million.
Amid the rapid global pandemic, there has been increased demand for better security as companies rushed to deploy tools such as virtual private networks that allow employees to connect to the office remotely. This shift has fueled a massive surge in demand for laptops not only with pre-installed security software, but also services such as CrowdStrike’s cloud-based security protection. The projected full-year revenue growth of close to 80% underscores the level of demand CrowdStrike has enjoyed.
In the third quarter CrowdStrike crushed revenue and profit estimates, delivering 86% year-over-year surge in revenue to $232.46 million, almost $20 higher than consensus. Adjusted EPS of 8 cents surpasses expectations for a breakeven quarter. During the quarter Subscription revenue was up 87% to $213.5 million, driven by the addition of 1,186 net new subscription customers. Just as impressive, annual recurring revenue — a closely-watched metric — reached $907 million, above estimates of $853.8 million.
During the quarter, the company saw a 61% increase in customers with four or more modules, while customers with five or more modules rose 44%. Investors nonetheless want to know whether these figures, as impressive as they are, were pulled forward. Meaning, have cybersecurity budgets already been spent? But it’s hard to imagine a scenario where cybersecurity won’t be a critical part of enterprise spending even in a post-pandemic world.
Currently worth $200 billion, the cybersecurity market is projected to grow at roughly a 10% compound annual growth rate within the decade. There will continue to be a need for better security as companies continue to adopt digitalization. On Tuesday CrowdStrike must issue guidance for 2021 that supports the market opportunity.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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