The cybersecurity industry is playing an increasingly important role in our society. As technology progresses and more data is stored in the cloud, there's going to be an ever-increasing need to protect that data. In fact, a recent report estimates that by 2025, the cybersecurity market will have increased in value by $190 billion from 2020. CrowdStrike (CRWD -0.24%) is one of the leaders in this space. It was built from the beginning to be a cloud-native cybersecurity solution for businesses of all sizes.
At the time of this writing, CrowdStrike is down 37% from its 52-week high. Is the company in trouble, or has it simply been caught up in the broader market sell-off? Let's see if CrowdStrike is worth your investment dollars in 2022.
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Impressive and consistent financial performance
CrowdStrike offers cloud-based cybersecurity products that are built on its Falcon platform. The company offers 19 modules that are all subscription-based and service businesses of all sizes. So far, its results have been impressive.
CrowdStrike has been remarkably consistent at growing its revenue. In the third quarter of 2021, year-over-year revenue growth was 63%. The company has also increased its revenue sequentially in every quarter it's been a public company. The majority of CrowdStrike's revenue comes from subscriptions, so as one would expect, gross profit typically increases each quarter along the same trajectory as revenue. In Q3, CrowdStrike's gross margin was a whopping 73%.
The company is not yet profitable, but that isn't totally uncommon for a company in the growth phase of its business plan. The good news for investors is that CrowdStrike is cash flow positive. In Q3, cash from operations was $159 million, and free cash flow was $124 million. The quarter ended with $1.9 billion in cash and cash equivalents on the balance sheet. These results are not an aberration either; CrowdStrike has produced positive operating and free cash flow for more than two years.
Customer growth and retention
As one might expect, CrowdStrike's revenue growth is being driven by growth in new customers as well as by existing customers purchasing more products. In Q3, CrowdStrike added 1,607 new customers, bringing its overall customer count to over 14,600, a 75% year-over-year increase.
More importantly, the number of customers who purchased four or more modules, five or more modules, and six or more modules increased to 68%, 55%, and 32%, respectively. As a comparison, those same percentages in Q3 of 2020 were 61%, 44%, and 22%. This tells us that not only is CrowdStrike attracting new customers, but once those customers are using its products, they're buying more and more.
CrowdStrike has also been garnering accolades from industry watchers. In December, CrowdStrike earned the highest rating for the third year in a row in the Gartner Peer Insights Voice of the Customer: Endpoint Protection Platforms report. In the report, 98% of customers stated their willingness to recommend CrowdStrike, the highest percentage of any of the other vendors that were assessed.
Great time to buy
The recent market sell-off has provided an attractive buying opportunity for investors interested in CrowdStrike. Shares are currently trading for 31 times sales, and while that's not exactly cheap, it is the lowest that multiple has been since the middle of 2020. CrowdStrike is also considerably less expensive than the newly public SentinelOne (S 0.38%), which has a price-to-sales multiple of 56. For investors looking for exposure to the cybersecurity market in their portfolio, CrowdStrike is a worthy investment for 2022.
