Thursday afternoon brought us another solid beat, beat and raise from a cybersecurity provider as ransomware and malware threats continue to grow ever more dangerous, not to mention unfortunately... ever more common. For the firm's first quarter, CrowdStrike (CRWD) reported adjusted EPS of $0.10 on revenue of $302.84 million. Both numbers were good for beats, while the revenue number displayed year over year growth of 70.1%. Interestingly, however, even as adjusted EPS of $0.10 compares well to the $0.02 reported a year ago, the GAAP EPS print (backing out of adjustments) of $-0.38,, which was a miss, compares less than well to the $-0.09 reported for the year ago period.
The numbers behind these numbers do show a firm growing significantly every quarter. Annual Recurring Revenue (ARR) increased 74% to $1.19 billion, of which $143.8 million was net new added during the quarter. Subscription growth came to 73%, while adjusted subscription gross margin landed at 79%. Operating cash flow and free cash flow both hit new records for a second consecutive quarter, printing at $147.5 million and $117.3 million, respectively.
The Balance Sheet
It's not like the balance sheet is weak, it is not. Still there are some interesting numbers that made me look twice. Cash and cash equivalents are down 12% over three months, which primarily accounts for the $254 million contraction in current assets. Total assets are up some $149M, but that was driven by the "goodwill" entry which is not a tangible asset. Goodwill has increased $83 million three months prior to $374 million reported at the end of this period. Current liabilities, as well as long-term liabilities are both up, but still dwarfed by the asset side of the balance sheet. Long-term debt is actually lower. I would love to know how they chose $374 million as a value for something not quantifiable, and why. They did not need it to balance the books and that would be what one might be afraid of. There must be something I just don't see. The Current Ratio is reflective of a healthy situation.
For the second quarter, CrowdStrike sees total revenue of $318.3 million to $342.4 million versus the $311 million that Wall Street is looking for. The firm expects this revenue to produce adjusted income from operations of $26.3 million to $30.7 million, which would be good for adjusted EPS of $0.07 to $0.09. This is between one cent and three cents above consensus.
For the full year, CRWD now expects to see revenue of $1.347 billion to $1.3657 billion, which is also above the street ($1.32 billion). For the year, the firm expects to produce adjusted income from operations of $115.7 million to $129.6 million, resulting in adjusted EPS of $0.35 to $0.41. The crowd is down around $0.28 on that one.
I do not dislike CrowdStrike. This firm is hot, but also very expensive. The shares trades at 740 times forward looking earnings and at 55 times sales. I did stumble through the balance sheet, but I saw no cause for concern. I just don't know if I need more than one of these stocks in my book. I already have shown favor to and own Zscaler (ZS) which is also an overvalued cybersecurity name, though not quite as overvalued as CrowStrike. Incidentally and not quite pertinent, I bet some readers don't know that CrowdStrike and Zscaler have had a marketing agreement in place since 2019.
CrowdStrike's cloud delivered endpoint protection product integrates well with Zscaler's cloud based security platform. That sounds wonky, but the two work together to strengthen a business's cloud network reliant upon many mobile endpoints. Nice that they compliment each other. The well diversified portfolio might not need both of them.
As for increased competition for investment dollars, readers should be aware that SentinelOne filed for an IPO on Thursday, hoping to list at the New York Stock Exchange under the symbol "S." SentinelOne, you may recall, was able to detect and stop the SolarWinds malware attack.
Readers will note that these shares have been in a state of consolidation for five months after a nearly year-long run out of the depths of the pandemic in 2020. Very interestingly, support for that basing pattern has come almost precisely at a 38.2% Fibonacci retracement of the entire rally.
If I were someone looking to add exposure to cybersecurity and chose CRWD to be that vehicle, I would need to see the 21 day EMA of $210 hold going into the weekend. That at least will keep the swing crowd in place. You see that spot crack, and the swing traders break, then the 50 day SMA comes into focus at $203. That brings larger money (portfolio managers) into play.
What I am saying is that if I wanted these shares, I need to either see momentum above $210, or if not... I wait for $203. An interested investor could write $202.50 puts expiring one week from today for about $2.30. That might not be too bad of a play.