CrowdStrike Holdings (NASDAQ:CRWD), a rapidly growing cybersecurity company, currently boasts a high valuation, buoyed by a record increase in net new annual recurring revenue (ARR). Despite the stock’s high valuation, the company’s integrated cybersecurity solutions remain in high demand among businesses; CrowdStrike estimates that its total market opportunity in 2024 will be $100 billion, growing to $225 billion by 2028. Thus, I’m bullish on the stock.
The company is actively pursuing partnerships to enhance the value of its comprehensive cybersecurity solutions. CrowdStrike recently partnered with AI-chip maker Nvidia (NASDAQ:NVDA) and cybersecurity firm Rubrik to strengthen threat detection for businesses. Partly as a result, CrowdStrike achieved $3.06 billion in revenue in FY 2024, representing a 36% year-over-year increase. This revenue growth primarily reflects CrowdStrike’s ability to leverage AI and decisive partnerships.
However, CrowdStrike’s price-to-sales (P/S) ratio, standing at 24.5x, is higher than the industry average of 12.4x, which is a point of concern for analysts. They caution investors that this high ratio hinges on the company’s ability to meet high growth expectations based on past performance. However, company projections for future revenue suggest a positive outlook, with management anticipating ARR to nearly double within the next three years.
Analysts anticipate a 27% annual revenue growth rate for CrowdStrike over the next three years, significantly surpassing the industry average of 15%. Additionally, the company has demonstrated consistent improvement in profitability, successfully shifting from a negative to a positive profit margin in recent years. Overall, I consider the CRWD stock attractive based on its increasing ARR, strategic partnerships, and growth track record.
CrowdStrike Matches the Ideal Product with Strategic Partnerships
CrowdStrike attributes a large part of its success to the increasing popularity of its AI-enabled Falcon Platform. Unlike on-site appliances burdened with heavy maintenance and scaling costs, Falcon is a cloud-native security solution. It’s a comprehensive security solution that can operate on a variety of endpoints, including desktops, laptops, servers, virtual machines, and IoT devices.
Falcon’s growing popularity among businesses has been a key driver of the company’s expansion. The platform’s success has motivated the company to seek numerous industry partnerships in the past month. To begin with, CrowdStrike integrated its platform with Rubik Security Cloud to unify threat detection across cloud and IT infrastructure. They tailored the combination to provide security teams with the context for quick detection and response to attacks on high-value data targets.
CrowdStrike also expanded its strategic partnership with Dell (NYSE:DELL) to offer Dell’s Managed Detection and Response (MDR) services, integrated with CrowdStrike’s Falcon platform. This collaboration aims to assist customers in protecting themselves against the rising complexity of cyberattacks.
Building on its growth strategy, CrowdStrike also embarked on a noteworthy collaboration with Nvidia. This partnership offers customers accelerated infrastructure and software for developing custom AI security applications using their data. The partnership creates new revenue streams and holds the promise of attracting more customers to CrowdStrike.
CEO George Kurtz highlighted the significance of the partnership, stating, “What we’re talking about with Nvidia, as a producer of mass amounts of security data, is to be able to leverage their Morpheus framework to allow our customers to bring their own large language models (LLMs). We’ve got the data, they’ve got the power and the software.”
JMP Securities analyst Trevor Walsh recently underscored the company’s positive trajectory, saying, “CrowdStrike has clear momentum heading into FY25, benefiting from platform trends, larger multi-product enterprise deals, and brand recognition/dominance in a number of essential security categories.”
CRWD’s Financials Continue Their Upward Climb
CrowdStrike’s latest financial metrics reflect the company’s growth trajectory. In Q4 2024, its revenue was $845 million, representing a 33% year-over-year increase. For Q1 2025, CRWD projects its total revenue to be within the range of $902.2 million to $905.8 million, above analyst expectations of $899.3 million.
Also, CrowdStrike’s ARR increased by 34% to $3.44 billion in Q4 2024, above analyst expectations of $3.39 billion. Although CrowdStrike experienced 8-10% declines in net new ARR growth during the first half of 2024, there was a considerable increase in the second half of 2024. Indeed, in Q4 2024, net-new ARR rose by an impressive 27%. CrowdStrike attributed this increase to its growing market share, new government clients, and the inclusion of generative AI features in its Falcon XDR platform.
In Q4, CrowdStrike reported GAAP net income of $53.7 million, a notable improvement from its $47.5 million loss in Q4 2023. It represented the company’s first instance of full-year GAAP profitability and the fourth consecutive quarter of record net income. This significant turnaround resulted in a 6.35% net profit margin for the quarter, a considerable increase from its 3.39% margin in Q3 2024. Looking ahead, for Q1 2025, the consensus estimate is that net income will be around $46.98 million.
In FY 2024, the company’s free cash flow reached $938.2 million, indicating a 38.6% year-over-year growth rate and a free cash flow margin of 31%. CrowdStrike’s non-GAAP (adjusted) earnings-per-share (EPS) has also been impressive, rising from $0.47 in Q4 2023 to $0.95 in Q4 2024, a 102.7% increase year-over-year. For Q1 2025, analysts estimate the company’s EPS to be slightly less at $0.90. However, CrowdStrike’s actual EPS has consistently beaten EPS estimates for the past 16 quarters.
CRWD Stock Is a Buy, According to Analysts
According to TipRanks, CRWD is currently rated as a Moderate Buy based on 39 Buys, 2 Holds, and no Sell ratings from financial analysts over the past three months. The average CrowdStrike stock price target is set at $396.45, implying 28.22% upside from its last price. These analyst price targets vary, ranging from a low of $323.00 per share to a high of $435.00 per share.
The Takeaway
CrowdStrike’s high stock price valuation reflects investors’ positive sentiment about its prospects for continued growth. While its high P/S ratio may give some investors pause, analysts note it is on track to achieve robust revenue for the next several years. CrowdStrike’s rapid revenue growth is the result of its cloud-native Falcon platform, a unique product offering for businesses seeking a comprehensive approach to security. Businesses are keen on its ability to eliminate licensing and maintenance costs.
