Falcon Flex And AI Capabilities Will Strengthen Future Position In Cloud Security Market

Key Takeaways

• Strategic innovations like Falcon Flex and AI tools are enhancing customer relationships and efficiency, leading to potential revenue growth and improved margins.
  
• Strong cloud partnerships and investments in security products position CrowdStrike for significant market expansion and sustained demand.
  
• Execution risks from reliance on emerging products and acquisitions might impact revenue growth if these products underperform.

Catalysts

Provides cybersecurity solutions in the United States and internationally.

• The introduction of Falcon Flex, a subscription model that accelerates module adoption and simplifies procurement, is increasing customer commitment and lengthening customer relationships, potentially leading to increased future revenue and improved net margins due to larger, bundled sales.
  
• CrowdStrike's AI offerings, such as Charlotte, and their innovation in AI capabilities are driving efficiency and operational enhancements both internally and for customers, which could improve future earnings by lowering operational costs and increasing customer satisfaction.
  
• The company's ongoing success with cloud and partner ecosystems, including surpassing $1 billion in AWS Marketplace sales, indicates strong growth potential in cloud-derived revenues and faster deal cycles, enhancing revenue streams and market penetration.
  
• Investments in emerging products like Exposure Management, Cloud Security, and Identity Protection that replace legacy systems indicate potential for significant ARR growth, impacting future revenues positively.
  
• The strategic focus on Next-Gen SIEM, cloud-native security, and large-scale partnerships, along with CrowdStrike's expansive data capabilities for AI development, positions the company for robust demand growth, which can drive revenue and contract value higher in future periods.

CrowdStrike Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CrowdStrike Holdings's revenue will grow by 22.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.5% today to 5.7% in 3 years time.
• Analysts expect earnings to reach $412.6 million (and earnings per share of $1.68) by about March 2028, up from $-19.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $683.2 million in earnings, and the most bearish expecting $-222 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 320.0x on those 2028 earnings, up from -4671.0x today. This future PE is greater than the current PE for the US Software industry at 28.2x.
• Analysts expect the number of shares outstanding to grow by 1.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.4%, as per the Simply Wall St company report.

CrowdStrike Holdings Future Earnings Per Share Growth

Risks

• There is a risk that CrowdStrike's reported forward-looking statements may not materialize as expected due to uncertainties, which could negatively impact future revenue and earnings.
  
• The financial results and projections include significant non-GAAP adjustments, which may mask potential volatility and impact perceptions of net margins and profitability.
  
• Competitive pressures in the cloud security market and the need for rapid innovation may increase operational costs, potentially impacting operating margins and free cash flow.
  
• The reliance on emerging products and recent acquisitions, such as Adaptive Shield, to drive growth could introduce execution risks that might affect revenue growth if these products do not perform as anticipated.
  
• Any failure to successfully execute the Falcon Flex subscription model or to maintain high customer retention rates could negatively affect the company's ARR growth and long-term revenue projections.

Valuation

• The analysts have a consensus price target of $408.355 for CrowdStrike Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $475.0, and the most bearish reporting a price target of just $321.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.3 billion, earnings will come to $412.6 million, and it would be trading on a PE ratio of 320.0x, assuming you use a discount rate of 7.4%.
• Given the current share price of $363.15, the analyst price target of $408.36 is 11.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.