CRWD基本面强劲且护城河宽广，但估值极高；鉴于估值风险，建议持有或卖出。

We've got Crowdstrike. That's the one that I've owned. These are two fabulous long-term investments. Both of them have smashed the market going at it in different ways. I think that crowd strike is a phenomenal business.

the there are some hefty expectations. I am a shareholder of Crowd Strike. I am not a shareholder of Palo Alto Networks.

I put them in the medium category. Th this this is if you understand SAS, they're not purely SAS, but I mean if you understand SAS, you probably get this. the business model is very straightforward with um with with crowd strike or at least it has been um historically.

This company up 260% over the last five years. So, the outage was right there. Yep. It looks like nothing in retrospect.

This was national news. They're causing planes to go down. Not not planes to go down, just to be clear. No planes crashed. Yes. the the airline systems are gone down. So if you bought this stock three years ago, almost a four bagger, right? Uh since then five bagger,

you bought at IPO in 2019, a 13 bagger, just absolutely smashing the market. 45% compound annual return if you bought at IPO.

a sensational uh company. $200 billion market cap, 10,000 employees. Founded about 16 years ago. It's a subscription uh style businesses, quick checks. So, profitability.

Wait, look, look at that mission. I put that top five all time. We stop breaches. Yeah. Three words. How how how hard is it to get a mission of a company down that succinctly?

it's it's a rare company that can do it that beautifully. So you you are absolutely correct. One of the best mission statements in in in all of public company land. Quick stats. Gross margin 75%. Operating margin negative 6%. Net margin negative 3%

Look at their free cash flow margin 27%. This is a jaw-droppingly good number. And and the the difference between these two, yeah, it's got to be GAAP versus non-GAAP. Stockbased compensation.

balance sheet, five billion in cash, only about a billion in debt. Great balance sheet.

Growth rate, 29% compounded growth rate over the last three years, 65% over the last 10 years. Free cash flow has compounded 34% annually over the last five years. valuation 44 times sales and 163 times free cash flow and no meaningful capital return program uh to speak of.

Crowd Strike sells cyber security as a cloud subscription so customers rent their defenses from a specialist instead of building and running them in-house. There's the Falcon platform, which is one lightweight sensor that sits on every computer, server, and cloud workload, and feeding a centralized cloud server that spots and stops attacks.

That's the Falcon platform modules, a catalog of add-ons that cover endpoint, cloud identity, data, and AI security. Each switched on without deploying anything new. professional services. Security endpoints handle incident response and proactive assessments, often becoming the entry point into a subscription.

What makes it distinctive? Rivals ship a new agent for every new capability, while CrowdStrike ships another module on the sensor already installed. so this is a stock that I've owned since 2020. So I bought it very shortly after it IPOed,

is that it has a lightweight agent. And the whole idea behind a lightweight agent is it's a it's a simple thing to install on whatever an your your phone, an endpoint, computer, a C, whatever.

And then it's got the graph, the Falcon, like it's got the the the the security graph in the cloud. And so the lightweight agent can send things to the graph. And the graph can send things to the agent, but it doesn't take up all the compute to run this on your endpoint, which is a pretty big deal.

Yeah. So it doesn't slow down your personal computer, whatever it's on, because all the processing is done elsewhere. Who are the customers? The buyer is an organization that has decided its computer and cloud need better protection than traditional antivirus and would rather rent than build it. So large enterprises, the public sector, federal agencies, defense customers, and state governments buying a certified regime.

25 of the 50 US states have standardized on it. mid-market buyers and breach responders. So if you have an incident, you kind of hire them to go on there.

So it's a cyber security some company selling cloud subscriptions and its Falcon platform is the key product. The other the other the other just key thing to note is they were the first cloudnative cyber security company which is going to be important when we compare this to PaloAlto

founded in 2011. So like the cloud was a burgeoning growing thing back then. 95% of their revenue is subscription-based. 5% is professional services. Now, growth rates, the overall subscription growing 29%, professional service is growing faster. And if we flip this over, the professional service is growing 29% over the last five years. Subscription growing 42%.

Where do they operate? 67% of the business is in the US, 16% in Europe, Middle East and Africa, 10% in Asia and other geographies. Seven. So twothirds US, but fairly diversified.

How predictable is revenue? Highly predictable. Subscriptions run one to three years and 95% of revenue. So the customer makes no fresh buying decision each period and the base renews by default. Best case scenario, right?

Can it raise prices? Okay. Falcon is embedded across a customer's whole estate and subscription margins are rising while customers keep buying more. So prices move without volume leaving.

Customer absorb more spend. Module adoption reached 51 35% and 25% of customers on six or more, seven or more or eight or more. 51% of customers have six or more modules.

So when this company came public, I believe there were nine modules total. Yep. Now, I've stopped keeping track because it's over 20 now,

but it's this is the is is the double whammy because it shows that they have optionality. There's no there's there's new modules that they can use, but each new module also makes the switching costs higher. And by the way, there are network effects here as well.

Is it recession proof? Definitely recession proof. Enterprise security. You have to pay. Yeah. This is a this is a painkiller product. It's not a vitamin. competitive position. This says average. Okay. Falcon is a differentiated single sensor platform growing with a fast market, but cash returns sit below the peer median and no share lead is named so it holds no clear edge.

Okay, the 10K since no competitor currently has a true platform equivalent to Falcon which delivers 32 modules on one sensor. It's fast growing but it market share is undisclosed and returns lags of peers. free cash flow margin of 27% sits below the 29% pure matter.

part of that's because a lot of the others are on premise which believe it or not on premise is cheaper because you just ship the code and it's on premise. You don't have to pay for the cloud.

the cloud is is is a much more convenient thing for customers though. It's it's better all around. kind of makes more predictable, but it is lower gross margin in particular. It's 80% gross margin versus 95. So, it's it's only merely fantastic. It's not it's not stellar.

But either way, uh to me, this is a five out of this is a five out of five business like checks so many boxes in exactly what I'm looking for uh personally.

Phase. Which of the five phases of the business growth cycle is the company in? Okay. Crowd Strike says phase three, the business is profitable and reinvesting all cash back into operations. Revenue is up. It's making money and all cash payouts.

um the company is not profitable on a net basis and not profitable on an operating margin basis. So, it's quote unquote losing money. I think it has correctly identified it in because it's looking at cash flows because we actually change the um the profit mod the profit metric depending on the type of business. So a capital lake company like crowdstrike operating cash flow is the appropriate metric to look at and that number is positive. And if you look back, this number has been positive since gez 2019.

This is a company that is profitable despite what the the gap numbers say. Are they buying back stock? Yes. But delilution is still rising. So they are buying back stock which you think oh maybe they're returning capital but the share count is still growing. That to us is a phase three company. You're you're minimizing dilution. You're not actually returning capital.

Moat. Uh so let's look at the current size of the moat. So a statewide lock in and a shared telemetry cloud are real, but cash returns are below the pier set to a narrow mode. So the lock in is real. Uh deployments with a 150% net revenue retention rate. Returns do not confirm it. So again, it's saying well the the cash returns the cash margins are below their peer group. So that's giving it a narrow mope. It's bounded not broad.

If I may just give my own opinion here, this is why we make you make a final call for every one of these stocks because humans still are the best tool. This is again like your first draft for me. It's wide and agree like if you have an outage that brings down the world for 24 hours and you still add customers, let me just say that again. You have an outage that brings national news, not international news. And you don't you you still add customers and revenue still went up to five. I don't care. I don't care.

To me, this is a wide mode business. Um and module attachment keeps deepening. The recurring base is growing and an accelerating rate. So, the moat is widening. So, the module adoption continues to grow. The flywheel is spinning faster. nothing material eroding.

Yeah, to me I totally agree. I think it has switching costs. I think it has um so the network effect. I I loved introducing this company to people during COVID because it was an easy way of explaining if you Brian Feraldi, if your endpoint gets attacked by a brand new type of cyber attack, then Crowd Strike notices it and then sends an instant immunity to every other Crowdstrike customer. So, the more customers there are, the more chances there are to have an attack, which is actually a good thing. Yes. because as soon as that attack happens, it can be recognized and immunity can be spread.

by a brand new type of cyber attack, >> then Crowd Strike notices it and then sends an instant immunity to every other Crowdstrike customer. So, the more customers there are, the more chances there are to have an attack, which is actually a good thing. Yes. because as soon as that attack happens, it can be recognized and immunity can be spread.

I mean, that is the very definition of anti-fragility and not the type of network effect we're accustomed to in like a marketplace network effect, but still a a network effect nonetheless.

In Crowdstrike's case, adding a company in Sri Lanka that faces some cyber attack because it learns from every single customer, updates the kind of central nervous system and then populates it everywhere. Literally, every new customer that signs up is a direct benefit to every existing customer. that is a much much marginally but abs totally marginally but I would argue is a true network effect not a not a um uh a branched network effect

and I would say this too uh this is not something that is now unique to Crowdstrike like PaloAlto has some of the same things but Crowd Strike was first which means that they've always been the best choice if that's important to you

anyway I'm going with you I'm going to say wide moat and And the moes and the moes widening like no doubt about it. Analysts expect revenue to grow 23% next year to roughly 5.9 billion. Call it 6 billion. A consensus draw from 49 analysts. So 24% compound annual growth rate.

Current pace runs higher. Revenue actually grew a little faster in the most recent quarter. So the forward estimates assume a slowdown.

Most of it is concentrated. Well, that's subscription contracted, excuse me, and guidance is moving up. Full year net reuring revenue was raised to 27% which calls for an acceleration over last year. To just put it in perspective, revenue was growing at 20% in the spring of last year and every single quarter it's gotten faster to now it's at about 26%.

So the thing is, yeah, they are calling for a slowdown, but they've been So, 125, 110, 92, 81. So you can see the actual growth percentage change. Now this is year to date versus last year. So >> So yeah, it's just comparing three months of growth. >> Correct. >> But basically it does mean that it grew 6% quarter over quarter. >> Yeah. 29% over the last three years, 40%.

Is the industry it's growing? Is the industry a tailwind or a headwind? Definitely a tailwind. No doubt about that.

And then finally, can new offerings drive growth? This is that optionality thing. when when does the company have the ability to launch new products that drive needle moving growth? Uh this is where their modules uh come in. So I'm gonna go with five out of five again, especially a company of this size.

I wonder if the outage has something to do with that. A founder-led team with a strong record against estimates offset by five straight years of heavy dilution and a cash margin that has slipped two years running.

Okay, so the owner is the chair. Founder George Kurtz has been chief executive since 2011 holds about 1% of shares outstanding, a stake worth roughly, call it a billion. I would bet that that number is actually higher.

No, that's actually what I see too. I I just looked. He he owns 8.5 million shares. Okay. It's worth it's worth about $1.8 billion. All right. Uh dilution is the real cost. Stockbased compensation ran 21 to 23% of revenue for five straight years and the diluted share count rose 10%.

It's part of >> Are they shareholder friendly? Better be red. Yeah, it is. Uh okay. uh to two signals in the middle free cash flow margin of 27% sits below the mere it's really it's harping on that point of the of the pure comparison but anyway so he founded it in 2011 he's the president CEO and director since 2011 he previously founded Found it until McCaffy acquired it and then he served in Macaffy's worldwide chief he owns 1% of the stock outstanding

do employees like working here 3.8 8 out of five. That's >> I think that's not bad. >> Especially given the outage that they had. >> That's pretty good. >> Sure. Was not fun.

Yeah. Do they beat expectations? Seven beat in eight. Let's check. Execution. Uh 100% of revenue beats. 100% of earnings beats. [clears throat] And this is the one that I care about. So revenue pretty much always beats.

Oh, this is a miss. >> Well, that Yeah. All right. It was right. >> I mean, right there. >> Pretty much a meat. >> Yeah.

Yeah. Uh, so I'm going to say great execution, definitely not shareholder friendly with the huge delilution. With the huge delilution and the margins here, I would say no. I would say that's good. How would you rate the management team? >> I give it a four. >> I would also give it a four.

I'm I'm a George Curts fan just in terms of he handled he handled he got through he's he's like a Reed Hastings. He got through the quickster tobacco >> and came out stronger in the other side. Same thing with George Curts.

I mean, personally, I'm an execution guy, right? Do Does >> you want to give a five, don't you? >> Does this guy execute? >> Yes. >> Yes, he does. He He executes. I would give it a five, but I'll go with four to uh for for consistency there.

Risk. No customer is above 10% of revenue. 95% of revenue is occurring and cash uh cash heavy balance sheet. Uh the usual frailities exist. No customers 10% of revenue. The 10K names large dependencies on Amazon Web Services, a limited supplier base with no guaranteed supply and privacy penalties.

One overhang still live. The July 2024 incident still drives long sales cycles, customer packages, and pending security reg uh legislation.

So, diversified revenues disruption. So, here's the thing. This was one of the This was one of I made a video today for my YouTube channel about how AI people were worried that AI could become a cyber security shield itself.

It's really hard to know how this plays out, but what I think is is that there's a strong argument to be made that's that Crowd Strike and Palo Alto are more important because of AI rather than less important. But AI is going to be well yeah it's AI is going to be increase the attacks because it's going to be easier to attack but it also bolsters the defense.

I don't know at the uh we went through a SAS apocalypse framework a couple years ago a couple of months ago and we were like is this mission critical or is it like optional? This this to me is something it's not like you're going to go to AI and say protect my company from cyber [laughter] go right um so I would say disruption is worth monitoring

um outside outside forces a platform that runs on infrastructure the company doesn't own its hardware suppliers carry go no guarantee privacy penalties are scaled to global revenue that might be a little too harsh >> yeah I I think it is

some and then the financials are Great. So, what would you give this? >> I would give it I would I think it's a three. Honestly, the biggest one is another outage like that. >> Yeah, for sure. >> That or or a huge breach that goes undetected. >> A breach would be way worse than an outage >> or at least an undetected breach. If they find if someone had crowd strike and you find out later that it's been exposed for months and months and they didn't know that, >> that's the big risk.

All right, valuation time. uh PE of 778, the PFC of 124. So this is crazy high, right? And this is the downside of using multiple analysis. Um it's defaulting to PE because the company is kind of profitable. I would say price to free cash flow is the better metric to to look at and look at.

So, at the peak of the crisis, it got down to 46 times trailing. Um, and if we look back in time, it kind of got to 36 times trailing. Price to free cash flow currently 143 143. And if you look on a price to sales basis, >> just let's let's do that. Price to sales basis. >> It came public even about 10 times sales. >> Even when it was cheap, it was 12 times sales, >> right? dirt cheap. It was 12 times sales and it got up to in the bubbles of 2021 about 57 uh time sales. Currently 42 uh time sales.

Um let's do a reverse DCF on this. >> Yeah. Yeah. So >> specifically a split growth 10-year reverse DCF. So what what do you think? Uh let's start with the net margin actually. So they have specifically called out many times for many years and it's been unchanged that they believe they can have a free cash flow margin of 38% on the high end. 38 >> 38. All right. So this model is [clears throat] assuming they can get to their stated goal of a 38% free cash flow margin. They're not there right now, but that's their stated goal.

So we're going to say, okay, assume that they can do that. Next, what is going to be their growth rate, revenue growth rate over the next three years? >> So, it's predicted to be about 22%. I feel comfortable bringing it up to 24 or 25. You you can even do 25 because we're still going to see my point come through here. Uh >> that's about matching with what their last three years. Oh, we just saw that this this rate has actually accelerated in the last in the last year. So, okay, we'll call it 24.

All right. I've heard >> terminal growth rate >> giving a 3% terminal growth rate. I I think that they can easily raise prices.

>> Okay. >> To grow required rate of return. >> I mean I use 10% on all companies just as like my kind of boilerplate. That's what I put in. I'm looking right now. Their beta, believe it or not, sits exactly right now where if you did the CAPM model, it should be 10% anyway.

Okay. All right. So, >> so here's the pro. So, so, so we are arriving at my problem right now. Th this this is my problem is that to justify today's price, we put in 24% revenue growth over the next three years, which is above above what is estimated. We gave a 38% free cash flow margin which is 10 percentage points or 50ish percent maybe 30 40% above where it is right now. >> Current numbers. Yeah. >> We did not penalize them at all for stockbased compensation. >> Right. and they still need to grow 34% from year four to year 10 on average to justify the I mean if if they keep trending up that's great but they're going to have to trend up to like 50% growth four five six years from now in order for this math to work or or if we could go up and change this into like a 15year because You could make the argument, but but even then, so look, even if these numbers sit, we're saying that it needs to plateau at 20% growth per year for the ne until until what? 20 >> shoot plateau at that until we retire in 2046.

There you go. There you go. [laughter] So, this company needs to grow its revenue 17% per year for 16 years after growing it 24% per years, plus get their margin up to 38%. for today's not including any effects of dilution.

So that's why that's why I bought it at the beginning of the year. I sold it at about a little bit higher than the price is today and that's why yeah so um this is what this model assumes needs to have it needs to have to happen. So I I feel pretty comfortable saying >> extremely expensive. >> This is a one to me.

Yeah. Great. Okay. So to review, um, awesome business in the operating leverage phase, wide mo that's widening, high growth potential, good management team, moderate risk, horrific valuation for a reason. Yeah.

Like it the four for the score, the 4.0, and a one for valuation, which I can't remember. Is valuation included in that four? >> It's not. >> Okay. So, the reason that it's a one is because it's a four. >> Correct.

It's it's it's an extremely quality company, which um which the market obviously loves. It's obviously bit up and it's it's it's saying it's down there. So, this to me is a great company. I I own it. Hold is probably pretty generous, but I'm going to go ahead and set a price alert myself and saying, "Hey, another 10% higher from here. [laughter] I'm going to be looking to sell."

Yeah, you you should. and then set your falls to to like 168 because then then it might get interesting. Yeah, there there you go. Okay, let's go ahead and say that. Are there any financials you want to look at here? >> Uh >> I mean you can go to their c like their KPIs and sometimes I like looking at that, but no, we this got >> most of of what I'm looking for. I do love looking at the dollar-based uh retention rate. So sitting at 115 is great. Gross retention sitting at 97. It's great.

Yeah. So, for those that don't know, gross retention is just down is just churn. That's all that it counts for. It's just churn. 97 98% churn is essentially nobody is leaving. That's that's incredible. The the best case scenario is 100%. which is essentially meaning none of your customers merge, none of your customers go out of business, [laughter] none of your customers um decide to to stop having uh your service. So again, sensational sensational business um extraordinarily um expensive.

So there there's proof that in theory Crowdstrike can get there because Palo Alto is currently doing it.

The alternatives are weighed uh way are named in the company's own filings. Checkpoint, Fortnite, Crowdstrike, Zcaler, and Whiz, plus Cisco, Microsoft, and Alphabet, which builds security into products customer may already own.

I mean, that's what Crowd Strike's already kind of been doing. They're the newer player on the block. They're they went from nine modules to what was it? 32. So they're they're trying to

Did we overrate then crowd strikes mode if also if if if Palo Network has it? Well, so this is where that first mover advantage comes in, right? So like if you were to go out today and really do your research, my guess is you would see that there's slightly more protection with Crowd Strike because they have so many endpoints out there already.

Is disruption a threat? Same thing with crowd strike. How much is inside their control?

Crowd Strike has started making acquisitions, but not on the same level that that I would imagine they're bolt-on to add modules, not needle moving company betting kind of kind of thing.

Crowd Strike is 44. Is that right? So, I mean this the normal or sorry, the super expensive for PaloAlto is kind of like the normal for Crowd Strike.

It's not quite as egregious to me as crowd strike, but it's still there.

I give it a two. So we gave a one to to Crowd Strike. I give this a two. Yeah. There you go. Okay. So to review, awesome business in the operating leverage phase. We gave the moes broad and the moat is expanding not as fast as crowd strike. The growth we gave very good, right? Management here was just as good. The risk here is moderate and the the valuation is a little bit a little bit lower.

So, both businesses were excellent. Um, CrowdStrike got a slightly higher average score than Palo Alto Networks did, offsetting that. Palo just got a slightly better valuation.

But Mr. Stoflel, if you had to pick one, which one would you go with? >> I would go with Crowd Strike if I had to pick one. I mean, and here's how and and that's the one I just sold. Um, but what I would say is is I would just say, you know what, go wait until a better price comes along. I believe one will. I could be wrong. I could be wrong. Or just buy a little bit.

I think Crowdre's gonna have a really hard time executing at the at the rate that that they are going at there. I think both of these businesses have tremendous future potential ahead.

And as a reminder, CrowdStrike is the one that I actually own, but if I had to choose right now, uh, if I was committing Fresh Capital, I would go with PaloAlto Networks.

>> Well, I I put a I put a alert on Crowd Strike. If it keeps going up, uh there is a price that becomes okay, the valuation here is so extreme that uh I I don't think the company can can live up to that.

Just real quick, we've got another minute. Do you ever worry if you do something like that about missing it is that I mean or is the fact that that's now included in stock simplifier kind of be like you know what I know I can get back into it because I'll get a notification when it hits a certain price.

>> I've done quite well with I I've already done quite well with crowd my crowd strike position, right? So it's like missing it. Um it's it's uh I don't have I don't spill milk about missing more upside potential when I've captured a bunch. Again, I I am very reluctant to sell. very reluctant to sell especially especially winners but there is a point when the valuation becomes so extreme that I don't think that I don't think the risk of holding given the valuation um uh compensates you enough for the risk that you're taking on