CrowdStrike: The Grinch Has Not Arrived Yet (NASDAQ:CRWD)

The cybersecurity space is still in high demand, but the product isn’t always as important as most investors think. Crowdstrike Holdings (NASDAQ: CRWD) ran into this scenario where a customer was delayed due to a macro issue New projects, longer sales cycles, added costs to close deals.my own investment paper Investors remain bullish on cybersecurity professionals and bearish on stocks.

not so important

CrowdStrike has top-notch cybersecurity products that are in high demand, but they don’t seem to be as important as they’re advertised. At the recent Barclays 2022 Global Technology conference, CEO George Kurtz highlighted a sales cycle in which customers are free to abandon product rollouts in the endpoint his security market, where the company only has 12% market share. did.

Non-Corporate Customers:

One was on the non-corporate deals we saw at the end of the quarter, which pushed it up to $15 million. And the sales cycle in that non-enterprise market he’s up 11% in the last quarter.

corporate customers:

…the structure of enterprise trading. I’ve seen some enterprise folks stagger the start date. We’ve always staggered our start dates, but last quarter we saw an increase of about $10 million.

So, to be clear, if a customer has 100,000 endpoints and wants to deploy a workload, they might use 50,000 this quarter and 50,000 next quarter. That would be an example. Another example is if a customer bought him 7 modules. And the 6th or 7th could go into the next quarter.

As such, SMBs are delaying deals and large enterprise customers are pushing out large deal implementations for multiple quarters. CrowdStrike claims next-generation endpoint his security products, but customers don’t seem to be in a hurry to launch new subscriptions because they already have security products deployed, such as I can not see. microsoft (MSFT) and other traditional vendors.

The cybersecurity space is plagued by the cumbersome process of replacing legacy vendor and in-house tools. Customers value cybersecurity, but most target customers already have existing security. Outside of customers who have recently experienced large-scale breaches, management always questions whether implementing CrowdStrike is all that important.

A big reason this is important is that SG&A expenses are starting to pile up to close new sales deals. Shareholders make money when software and products fly off, but not when the entire sales force has to spend months trying to close deals.

Over the past 18 months, S&M expenses have increased from $105 million to $240 million. Even G&A costs doubled for him in the third quarter of fiscal 2023, to $84 million per quarter.

Non-GAAP costs have not risen significantly, but this requires investors to focus on GAAP costs to fully understand higher costs, whether related to stock-based compensation or otherwise one of the analyses.

Excessive hope continues

The shocking part about CrowdStrike is that investors seem uniformly bullish on the stock even after the drop to $101. The company has even led to slowing growth, but the average analyst still gives away bogus gifts with a $179 price target on cybersecurity stocks.

Note that CrowdStrike is trading at 11 times its FY23 (January) sales target, only dropping the multiple to $2.98 billion, eight times the FY24 number. Many investors make the mistake of judging if the stock is cheap based on the current price, but to generate the 20% or 50% profit that the investor wants to achieve in the next year or so. You really need to understand what multiples you need.

CrowdStrike is already trading in rich multiples. Hitting the analyst’s target would require the stock to surge to reach nearly 15 times his 2024 sales target.

A prime example of this over-expectation is analysts’ list of CrowdStrike’s top contenders for 2023. William Blair analyst Ralph Shackert recently put the stock on his 2023 top tech list. alphabet (GOOG, GOOGL) and Workday (Wednesday). BTIG suggests CrowdStrike is de-risked, but the stock has a more premium valuation and price target.

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The takeaway for investors is that CrowdStrike is more attractive if the stock isn’t trading at its typical peak valuation at the bottom of the market. The stock won’t be an attractive long-term investment until analysts start predicting the biggest downside risk compared to the current view that CrowdStrike has the biggest upside potential in 2023. .

Our view is that the Grinch has not yet arrived to steal the gifts the analysts are handing out.