CrowdStrike
Cloud security leader
Founded in 2011, CrowdStrike is a leader in cloud-delivered endpoint protection, threat intelligence, and response services via its core technology called the Falcon Platform. Chief Executive Officer and founder, George Kurtz, created the business to capitalise on the growth of cloud and to leverage crowdsourced data from customers to be able to identify threats and protect customers.
The company offers a 100% cloud-based platform that is designed to stop 100% of breaches and is lightweight with no hardware and requires low CPU resources, which gives it a competitive advantage over some of its legacy peers. The single platform offering reduces complexity and cost for clients.
CrowdStrike generates 69% of revenue from the United States (US). Most revenue is generated from endpoint protection; however, the company is now branching into other areas of security such as cloud security and identity protection.
CrowdStrike's services are offered as modules on a single console platform. Customers can select which modules they require and can add more modules at a later stage if they desire or as more are created. Signing up to the service is quick and easy as there are no hardware, additional software or configuration requirements for the customer. CrowdStrikes' net retention ratio is 125% due to the strong module adoption of customers over time.
CrowdStrike runs a software as a service (SaaS) model, with 94% of revenue from subscriptions and the other 6% from professional services. The company has seen significant growth in subscription annual recurring revenue (ARR Most recently, ARR has been growing at 37%.
However, the company is still in the early innings of its growth. The total addressable market (TAM) within cybersecurity is vast and growing rapidly. CrowdStrike estimates its current TAM to be $76 billion growing at a two-year CAGR of 13% to reach just under $100 billion by 2025. When including CrowdStrike's future planned offerings, the company believes that by 2026 its TAM will be around $158 billion.
Endpoint protection
Endpoint protection is CrowdStrike's largest revenue stream. It encapsulates the technology necessary to secure the many different types of endpoints across an organisation, such as desktops, laptops, tablets, and servers. Endpoint security is very important as 90% of successful cyberattacks originate at the endpoint. In addition, 80% of valuable security data can be collected at the endpoint, which can then be used to analyse and help prevent future cyber threats.
CrowdStrike pioneered cloud-delivered endpoint security with a lightweight cloud-based, AI-powered prevention platform. Although there are many competitors in this space, CrowdStrike is the lead innovator and market leader in modern endpoint security with 17.7% market share in a still fast-growing market.
Approximately 47% of the endpoint protection market is still using "legacy" antivirus (AV), which creates a huge opportunity for CrowdStrike as potential customers replace their legacy vendors with a more modern approach. For reference, legacy AV only recognises known vulnerabilities whereas 71% of breaches are now malware-free and 80% of attacks use compromised identities, which would generally go undetected by legacy AV. As such, endpoint security remains a high growth area for CrowdStrike, particularly in small- to medium-sized businesses.
Future growth opportunities
CrowdStrike has identified a further three key areas where it sees robust future growth and for which it has created modules, being Cloud, Identity, and Next-Gen SIEM. These still make up only a small proportion of revenue (~17.0% in 2Q24) but are growing very rapidly (up 115% y/y in 2Q24). These new modules will be integral to CrowdStrike meeting its five - to-seven- year $10 billion in ARR growth target (FY23: $2.6 billion).
Cloud security management
As the global cloud grows, cloud-based attacks become more frequent. It is expected to be one of the fastest growing segments of cyber security as more enterprises move to the cloud and because cloud security remains complex, fragmented, and immature. CrowdStrike has a 5.9% market share in cloud security with a TAM of $12 billion, which is expected to grow to $31 billion by 2028. ARR in this segment has grown rapidly since CrowdStrike entered this space (~100 million in 4Q22 to $300 million in 2Q24, growing at 70% per annum organically).
Identity protection
About 80% of cyber-attacks are attributed to compromised credentials, which makes identity an important part of a cybersecurity system. CrowdStrike first went into Identity Protection in FY21 when it acquired Preempt Security, a leader in zero trust identity security. CrowdStrike's Identity Protection product is integrated as a module on its Falcon platform. The segment generates above $200 million in ARR, up from $6.8 million when it launched two years ago and with a rapidly expanding TAM.
Legacy security information and event management (SIEM)
SIEM collects log files, security alerts and events into one place so that security teams can more easily analyse data. The data is collected from other security systems and stored centrally so that analysts don't have to go to each application to conduct investigations.
CrowdStrike acquired LogScale in March 2021. Logscale enables organisations to log, search and organise data to understand and assess issues in their environments. These insights help to optimise resource availability, security, and uptime. As with Legacy AV, SIEM is dominated by incumbent vendors who are not innovating, whose systems are high cost (typically priced by the amount of data that is logged), lack scalability, run poorly in the cloud and are slow. Logscale is faster, cheaper, and more scalable. CrowdStrike saw the opportunity to disrupt this space and has grown rapidly since its acquisition of Logscale from $5.5 million in 1Q22 to $100 million in 2Q24. Management views SIEM as a $16 billion market opportunity by 2028.
CrowdStrike versus Microsoft Defender
CrowdStrike believes it is superior to Microsoft Defender across the three 'C's' - coverage, complexity, and catastrophe.
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Charlotte AI tool
CrowdStrike has recently introduced an artificial intelligence tool which is expected to be very beneficial to clients. The technology can cut down a days' work for a security analyst to five to 10 minutes job as it determines where threats are, how they apply to the environment the company is in, and then writes a report.
Financial considerations
Investment case summary
Risks
Consensus Considerations
Valuation
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