CrowdStrike Q1 2023 Update

Endpoint cybersecurity vendor Crowdstrike (CRWD) reported its Q1 earnings earlier this week. Let's take a quick look at the results.

Overall, it looks like a strong quarter from a strong performer. Total revenue grew 42% to $488 million, 94% of which was recurring subscription revenue. Forward metrics look good, too, with annual recurring revenue increasing 42% to $2.73 billion, and net new ARR above guidance at $174 million. We are seeing the company's growth rate remain strong, although it is moderating from the 60%+ growth we've seen over the past several years. This is normal and accounted for in the fair value modeling.

Expanding business with existing customers - a key part of the thesis - continues to be a strength for Crowdstrike. Net revenue retention remained over the 120% mark, and 62% of customers have adopted 5 or more modules, a slight increase from 59% a year ago. Notably, there were 50% more deals involving 8 or more modules compared to a year ago, illustrating customer willingness to standardize its cybersecurity on the Falcon platform.

Plenty of companies have top line growth. What impresses me about Crowdstrike is that it has top line growth AND strong cash flow generation. Free cash flows came in at about $275 million this quarter, a robust 39.6% margin. Trailing 12 month free cash margin is 38.4%, well above my long term target of 35%. Cash return on invested capital stands at 68.5%. This is an extremely well-run and efficient company.

I continue to like Crowdstrike's growth potential, moat, and leadership a lot. That said, there wasn't much in the quarter to change the financial model, so the fair value target gets just a couple dollar bump up to $224 (from $222). This still represents a stock that is 30% undervalued at present. Even up 50% from its lows a few months ago, CRWD stock continues to look like a very good "buy" candidate.