Crowdstrike is building a sticky cybersecurity ecosystem



Mall software companies depend on a development and expansion model to grow their business. The idea is that you “land” with a product or a small group of users and “extend” the software to other users and / or other software modules. As customers benefit more from the software, it becomes more difficult for them to leave. This strategy works extremely well for cloud cybersecurity specialist CrowdStrike (NASDAQ: CRWD). On a Motley fool live episode recorded June 16, contributor Brian Stoffel discusses the company’s most recent quarter and explains the must-see chart for investors.

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Brian Stoffel: I’ll move on to the next one which is CrowdStrike, the ticker symbol is CRWD. It is a cybersecurity company that mainly focuses on cloud endpoints. An endpoint simply means the point where data ends: your phone, your computer, and there are other ways as well. They announced that their profits and revenues for the first quarter were up 70%; subscription revenue, even more, 73 percent. Their customers, they had an 82 percent growth in the number of customers. Part of that was helped by an acquisition. Free cash flow increased 37% for the quarter. Listen to this, guys, 43 percent of all income from the free cash flow transition. It won’t always happen. It has to do with when people pay for their services for the year, so that’s part of it, but it’s still a crazy number.

In terms of outlook, second quarter revenue is expected to grow 61%, so a little slowdown if that’s what they hit. For the year as a whole, turnover increased by 55%. Another slowdown, but again, not yet, I didn’t say that, but they’ll usually underestimate what they think they’re going to do and then outperform when they get their ad, and there’s just one thing i want to show off.

Crowd strike, [when] they started, they had 10 tools to use, and now it’s up to 19 tools. With each tool you add, your switching costs get higher and higher and the amount of data that they are able to collect increases more and more, so there are both network effects as this data helps protect customers against violations. There is a network effect and the switching costs are high.

But look at this, guys. Now this is some envelope bottom math that I did. This blue is the number of clients who have adopted at least four of these 19, red is at least five, yellow is at least six, but here’s the thing, it’s per quarter. It’s not by year, it’s by quarter, so we compare those 7,309 here to the end with those 3,444.

Ultimately, the number of customers owning four or more tools is up 112%. Remember, this is more than doubling. The number of five or more is up 161%. This rate, we don’t know what it is because they only released it for the last three quarters, it’s at a growth rate of about 170% per year. They do a lot of things right.

Brian Stoffel owns shares of CrowdStrike Holdings, Inc. Brian Withers has no position in any of the stocks mentioned. The Motley Fool owns stock and recommends CrowdStrike Holdings, Inc. The Motley Fool has a disclosure policy.

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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