CrowdStrike (CRWD) has been swept up into the stock price carnage that has descended upon the buzzy IPO class of 2019.
The stock has plunged to about $55 a share from a record of $101 a share in late August, which was hit a few months following a very well-received June IPO. The million-dollar question right now is whether the selloff is absurdly overdone for such a red-hot cybersecurity firm.
CrowdStrike co-founder and CEO George Kurtz continues to be in high spirits, fresh off a whirlwind 100-day tour with 100 of its top customers. No talk of recession in those talks, nor indications of customers looking to curtail their cybersecurity spending in a world where a nasty hack always lurks.
“From my standpoint, we are excited about the business,” Kurtz tells Yahoo Finance. “I think Warren Buffett said it best — if somebody bought a stock would they be happy owning it five years later if the stock market shut down. From our standpoint, we continue to add value to the company and think long term. So there will always be ups and downs in the stock market, but as long as we service customers we think that’s the best approach.”
He is probably right to continue to think big and use Buffett to get the message across to a new crop of investors.
CrowdStrike is ‘uniquely positioned’
Sure, one can ding CrowdStrike for never being profitable — it’s spending good chunks of its gross profits to add people and develop its product suite. The lack of profitability (Kurtz was unclear in our interview on whether profits would appear in 2020) is probably one of the main reasons why CrowdStrike’s stock has sold off aggressively in recent weeks. Unfortunately, any tech new issue is being branded as Uber and WeWork (unproven money losing businesses) — even if their business models have been proven in the past.
Wall Street analysts have used the downside momentum in CrowdStrike to lower their ratings and price targets, further pressuring the stock price. Just in the last week alone Citigroup and Goldman Sachs came out with Sell ratings on CrowdStrike. But lost in those headline grabbing downgrades are both firms voicing approval of CrowdStrike’s technology and growth rates.
“We believe CrowdStrike is uniquely positioned to continue to take market share, evidenced by accelerating customer growth over the past two quarters driven by expanding go-to-market initiatives,” Goldman Sachs analyst Heather Bellini wrote in her note this week downgrading CrowdStrike to Sell.
In large part, the analyst calls on CrowdStrike have been valuation based. It makes sense given the wild post IPO run-up, but now that the stock price has basically been halved one has to wonder if investors are missing an opportunity.
CrowdStrike has several positives in its favor, per Yahoo Finance’s analysis:
Customer retention rates significantly upward of 100%.
A recurring revenue stream growing at triple digit percentage quarterly clips. Cybersecurity remains the number one investment priority among chief investment officers, according to that same Goldman Sachs research note.
Significant opportunities to upsell customers to more CrowdStrike products. Currently, 50% of CrowdStrike’s customers only use four out of 10 of its products. More upselling, more new customers equals profits.
CrowdStrike is making strong inroads to being the preferred Security Cloud provider for Amazon Web Services.
CrowdStrike has begun to make greater inroads into providing cybersecurity solutions to the government.
Symantec’s breakup could send more business to CrowdStrike.
The takeaway: providing cybersecurity solutions is a proven business model. CrowdStrike shouldn’t even be in the same discussion with Uber and WeWork.
By no means are we saying buy CrowdStrike’s stock — that’s not what we do here. What we are saying is that sometimes there is a disconnect between a company’s fundamentals and the market. Now may be one of those times for CrowdStrike.