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What Has Supported CrowdStrike’s High Valuation?

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Jun. 13 2019, Published 12:27 p.m. ET

CrowdStrike valued at 44x sales

CrowdStrike (CRWD) had a monumental opening as a publicly listed company. The firm is now valued at 44.0x sales. CrowdStrike reported sales of $250.0 million in fiscal 2019 (year ended in January), a rise of 100.0% year-over-year. Though revenue doubled in the last fiscal year, net loss widened from $91 million in 2017 to $135 million in 2018 and $140 million in 2019.

CrowdStrike’s subscriptions to its cloud platform also doubled last fiscal year to 2,500. In the first quarter (ended in April), CrowdStrike sales are estimated between $93.6 million and $95.7 million, again almost doubling from the prior-year period. Operating loss is estimated at between $26.5 million and $25.7 million.

 

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But are these growth metrics enough to justify CrowdStrike’s insanely high valuations? CrowdStrike’s market cap is almost as much as Symantec, which had annual sales of $4.83 billion at the end of its last fiscal year. Though CrowdStrike’s revenue growth estimates are robust, the company is far from profitable.

It is a part of a crowded business segment. The cybersecurity space has attracted large players such as Cisco (CSCO) as well as niche heavyweights such as Fortinet (FTNT), Palo Alto Networks (PANW), and Checkpoint (CHKP).

However, as cyber attacks continue to rise, there is a strong demand for a sophisticated stream of solutions. CrowdStrike was in the news as it identified two Russian espionage groups that managed to influence the presidential elections back in 2016 by hacking Democratic National Committee email servers.

The year of the IPO

This year has seen a glut of IPOs, especially in the tech space. In 2019, multi-billion-dollar companies such as Uber, Lyft (LYFT), Beyond Meat (BYND), and Pinterest (PINS) have gone public. Slack is also expected to go public by the end of this month.

Does this signal a buoyant investor sentiment? Uber, Pinterest, and Lyft have been volatile, as there are concerns over profitability. Though Beyond Meat is also unprofitable, it has already generated triple-digit returns since its IPO due to a huge addressable market.

Will CrowdStrike go the Beyond Meat path or will it struggle to gain investor confidence? We will get a detailed perspective on the company’s financial metrics once it reports its quarterly results. Until then, sit back and enjoy this roller coaster ride!

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