CrowdStrike (CRWD) is well-positioned to continue to gain market share across the cybersecurity sector.
The company’s platform, made up of a number of AI-powered products, is set to drive healthy expansion in the year ahead. For fiscal 2025 (Jan.), the consensus revenue estimate of $3.93 billion represents growth of 28.9%.
CrowdStrike has been executing well, balancing strong top-line growth with margin expansion and improving free cash flow. In fiscal Q3 (Oct.), CrowdStrike’s revenue of $786 million advanced 35%. Operating margin of 22% was up 700 basis points year over year. Free cash flow was a record $239 million (30% margin).
In the October quarter, the company added a record $223.1 million of net new annual recurring revenue (ARR), with total ARR rising 35% to $3.153 billion. CrowdStrike wants to reach $10 billion in total ARR in five to seven years.
The company continues to take business away from legacy vendors in its core endpoint security market, where it still has less than a 20% share. The endpoint business alone is expected to make up around half of total ARR at the $10 billion level.
CrowdStrike’s cloud security business is emerging as a key growth driver. Organizations are increasingly replacing point products in favor of cloud security platforms. CrowdStrike sees total ARR for the cloud security unit reaching $2 billion to $3 billion in five to seven years. In FQ3, cloud security growth accelerated and CrowdStrike entered the January quarter with a record pipeline. The number of customers protected in the public cloud rose 45% year over year.
CrowdStrike in FQ3 closed multiple large cloud security deals, including an 8-figure total contract value (TCV) transaction with a new hospitality customer. The deal was part of a broader Microsoft (MSFT) replacement. CrowdStrike closed a 7-figure expansion with a large enterprise SaaS provider that replaced various existing point solutions. In addition, CrowdStrike signed a 7-figure expansion with a major apparel brand that replaced another vendor’s cloud security products.
CrowdStrike sees plenty of potential in identity protection, which could hit $1.5 billion in total ARR in five to seven years. In this segment, CrowdStrike does not compete with Microsoft in identity creation or Okta (OKTA) in identity management. Instead, the company secures the agents, tracking where a specific identity is going in terms of lateral movement. For example, it would flag the identity of a user trying to access files that are outside of normal parameters.
About 80% of security incidents these days involve identity, so it’s clearly a major problem area. In addition to winning new identity accounts, CrowdStrike has a big cross-sell opportunity, as just 9% of its customers have adopted an identity product. In FQ3, CrowdStrike’s identity business experienced a record quarter. There was an 8-figure TCV deal with the federal government and several 7-figure wins in the financial services, CPG and manufacturing verticals.
LogScale, CrowdStrike’s next-gen SIEM business (security analytics), represents another key growth driver. LogScale combines log management and SIEM on the same platform. In FQ3, LogScale surpassed $100 million in total ARR. CrowdStrike estimates that the business can hit $1.5 billion in ARR over the next five to seven years. The company says LogScale’s search speed, data gravity and cost efficiencies all work together to provide a competitive advantage.
CrowdStrike CEO George Kurtz has said that legacy SIEM is starting to feel like the legacy anti-virus market did 10 years ago. While incumbent SIEM vendors are entrenched, their customers have a lot of dissatisfaction because of too much complexity. Organizations are now demanding better, faster and cheaper SIEM offerings that work at cloud scale. CrowdStrike has been seeing a significant increase in the number of organizations looking to upgrade their SIEMs.
In FQ3, CrowdStrike secured a 7-figure expansion win with a major consumer staples company that will use LogScale to ingest data from third parties and correlate security alerts. When it was called in to stop a breach at a financial services firm, CrowdStrike landed a 7-figure new logo SIEM win, replacing incumbent Microsoft. CrowdStrike closed another 7-figure new logo win with a business process outsourcing firm that needed to replace a legacy SIEM.
CrowdStrike’s partner network will be an important contributor to the company’s future growth. Partners bring in new accounts and drive platform adoption. In 2023, more than 60% of all new logo wins were partner-sourced. CrowdStrike is the fastest-growing cybersecurity vendor in the channel (ahead of Microsoft and Palo Alto), according to research firm Canalys.
