CrowdStrike (CRWD) By David Marlin

CrowdStrike was founded with the goal of reinventing security for the cloud era. CrowdStrike’s Falcon
platform delivers comprehensive breach protection against today’s most sophisticated attacks on the
endpoint, where the most valuable corporate data resides. Today, the company offers 11 cloud
modules on its Falcon platform via a subscription-based model that covers numerous security markets,
including endpoint security, security & IT operations (including vulnerability management), and threat
intelligence. CrowdStrike’s AI based security model is focused on collecting large amounts of data,
centrally storing it in a single model, and continuously training its algorithms with the vast amounts of
data. The more data that the Falcon Platform collects, the more intelligent the platform becomes in
detecting and stopping breaches. Today, CrowdStrike’s cloud-scale algorithms make over 134 million
indicator of attack decisions per minute.

Cybersecurity Attacks are happening more than ever

Through the end of July, CrowdStrike observed an increase in eCrime activity up over 330% since the
start of the year versus in 2019. In its Q2 earnings call, CrowdStrike’s CEO claimed that in the first-half
of 2020, the company saw a 154% increase in distinct and sophisticated intrusions and stopped 41,000
potential breaches, which is more than all of last year. The COVID-19 pandemic has increased the
importance of cybersecurity, with 3 out of 4 business leaders seeing cybersecurity as a top priority in
COVID recovery. The speed and size of change to a remote workforce has uncovered some gaps in the
cybersecurity of many organizations. Data shows that business leaders are aware of these gaps and
cybersecurity spending is expected to increase to address them.
 CrowdStrike (CRWD) By David Marlin

With cybersecurity spending expected to increase at a 10% CAGR over the next 3 years, CrowdStrike is in
an ideal position to continue its momentum. Endpoint security is expected to be the 2nd biggest priority
among security spending.

Specific to endpoint security software, CrowdStrike’s market share has nearly doubled over the last
year. The company has been identified as the fastest growing endpoint security software vendor.
Endpoint security is critical element of a multilayered security strategy, as endpoints are frequently the
first point of entry for attackers. CrowdStrike is 1 of 5 leaders in endpoint protection and the company
continues to outshine the competition and increase its market share.
 CrowdStrike (CRWD) By David Marlin

In a recent survey conducted by Morgan Stanley, CrowdStrike is shown to be the top endpoint
protection vendor among the business leaders surveyed.

CrowdStrike’s Falcon is armed to fight sophisticated threats and stop breaches through a combination of
malware prevention, enterprise detection and response (EDR), and threat hunting. Specific to
enterprise detection and response, CrowdStrike has been named 1 of 3 leaders by Forrester research.
 CrowdStrike (CRWD) By David Marlin

The Forrester Wave Enterprise Detection and Response Scorecard for Q1 show CrowdStrike leading its
competition in terms of total score:
 CrowdStrike (CRWD) By David Marlin

Financials

CrowdStrike reported excellent Q2 results on September 2nd, comfortably beating revenue estimates
with an 84% YoY growth rate. Subscription revenue grew 89% YoY, ARR grew 87%, and the company
now boasts a total of 7,230 subscription customers (+91% YoY), 57% of which have greater than 4+
modules. CrowdStrike has exhibited consistent growth in the number of its customers using 4+ module
subscriptions, indicating that existing customers are happy with the platform and continue to spend
more to add additional protection.

The company now has 49 of the Fortune 100 companies as customers. Moreover, CrowdStrike took a
significant step towards profitability in Q2 with its first quarter of positive operating margin (4%). The
company also generated positive free cash flow for the quarter at an impressive 16% FCF margin. This
was CrowdStrike’s second consecutive quarter of positive adjusted EPS, and the company is expecting to
breakeven for the full year with a $0.05 EPS estimate at the midpoint of their FY21 guidance.

Management raised revenue guidance for Q3 and FY21, calling for 71% YoY growth in Q3 at the
midpoint. This outlook bakes in logical conservatism and represents a fairly easy target for CrowdStrike
to beat.

Risks

The biggest risk for CrowdStrike is related to the intense competition they face within the cybersecurity
industry. The market for security and IT operations solutions is intensely competitive and characterized
by rapid changes in technology, customer requirements, and by frequent launches of new or improved
products to combat security threats. CrowdStrike remains the fastest growing endpoint security
platform, but if they are unable to react to new competitive changes, they will see a decline in growth
and lose market share. The company must continue to adapt in a highly dynamic industry to sustain its
growth levels.

Competitive pricing pressure could end up damaging CrowdStrike’s profit margins and forcing the
company to lower its prices to compete. Many of the company’s competitors have deep pockets and
the threat of a price war remains one of the biggest risks to CrowdStrike.
 CrowdStrike (CRWD) By David Marlin

Key Takeaway

CrowdStrike continues to prove it is a secular winner in the cybersecurity industry, displacing the
existing participants and gaining significant market share. The fundamental performance in Q2 confirms
this company is a best-in-class business worth owning for a myriad of reasons.