CrowdStrike (CRWD): Market opportunity in cloud security is expected to rise ten-fold by 2023

Shares of CrowdStrike Holdings Inc. (NASDAQ: CRWD) soared over 13% on Thursday. The stock has gained over 223% since the beginning of the year. The cybersecurity company reported strong results a day ago for the third quarter of 2021, signalling the increasing demand for security solutions in the new business environment where remote work has gained prevalence.

Strong Q3

Total revenues jumped 86% year-over-year to $232.5 million, helped by an 87% growth in subscription revenue and a 74% growth in professional services. The heightened threat environment drove higher demand for its services business, which translated into a growth in seven-figure subscription ARR deals.  

Annual recurring revenue (ARR) rose 81% year-over-year to $907 million. The acquisition of new customers and the expansion of its business with its existing customers helped the company rake in nearly $117 million in net new ARR. The acquisition of Preempt Security contributed approx. $6.8 million to ending and net new ARR.

Growth drivers

Companies across the world are undergoing a security transformation as they move to modern cloud-native technologies. CrowdStrike plans to drive growth through the acquisition of new customers, expansion of its business among existing customers, roll-out of new product offerings and the expansion of its international footprint.

The increasing need for cybersecurity in the wake of a rapid shift to remote work combined with a favorable competitive landscape are expected to be tailwinds for the company. During the quarter, CrowdStrike added 1,186 new subscription customers, including 64 from the Preempt acquisition, to reach a total of 8,416 customers at quarter-end, up 85% year-over-year.

In terms of business expansion among existing customers, the company saw a 61% increase in customers who adopted four or more modules, a 44% increase in those who adopted five or more modules and a 22% increase in customers who adopted six or more modules.

Over the last nine months, around 3,000 new customers have chosen the company’s Falcon platform, which currently includes 16 modules. During the quarter, CrowdStrike rolled out three new modules in the Falcon platform for cloud security management, threat detection and incident response investigation. On its quarterly conference call, the company stated that its addressable market is estimated to reach $32.4 billion in calendar year 2021 compared to the estimated $24.6 billion market in 2019.

Two key areas with significant growth potential are cloud workload security and identity protection. As more companies conduct their operations virtually and move their workloads to the cloud, the need for security increases. CrowdStrike sees a significant market opportunity in this space.

During its investor conference in October, the company said it estimates the market opportunity in cloud security to grow by 10 times to $12.4 billion from the current cloud security spend of $1.2 billion in 2020.

CrowdStrike also believes it is necessary to combine workload security with identity protection to improve its security solutions offerings in order to drive growth. On its earnings call, the company stated that according to IDC estimates, identity protection is projected to be a $2.2 billion market in 2021.

Outlook

For the fourth quarter of 2021, CrowdStrike expects total revenue to grow 61-65% year-over-year to $245.5-250.5 million and adjusted EPS to range between $0.08-0.09. For fiscal year 2021, net revenue is estimated to rise 78-79% year-over-year to $855-860 million and adjusted EPS is projected to be $0.21-0.22.

Click here to read the full transcript of CrowdStrike Q3 2021 earnings conference call