CrowdStrike: slowing growth makes for cyber insecurity

Online threats to companies do not disappear in economic downturns. So says George Kurtz, chief executive of CrowdStrike. Yet after reporting revenue growth of 42 per cent in the first quarter, the US cloud cyber security company is predicting full-year growth will drop to about 35 per cent. That is the slowest on record.

CrowdStrike is not alone. Okta is also predicting a slowdown in revenue growth. Both share prices have dipped accordingly.

This is despite Crowdstrike’s addition to the fashionable generative artificial intelligence market with an ‘AI security analyst’ called Charlotte. It says it uses AI to identify threats via its Falcon software platform. Then again, investment in AI by software companies has yet to produce tangible revenue bumps.

CrowdStrike was part of a bumper crop of initial public offerings in 2019. While others in the group, including Uber and Lyft, have struggled to live up to early market interest, CrowdStrike shares have jumped from the $34 listing price to more than $157. On forecast sales, it trades at about 15 times. That may sound high but software companies such as Snowflake and Datadog trade at higher multiples.

The $37bn company’s so-called ‘go-to-market’ strategy is widely praised, with free trials and demos attracting enterprise customers. As its customer base has grown, users have bought more of its services. In the last quarter, the number of customers using five or more CrowdStrike services rose 62 per cent year over year.

Like many software companies that spent the low interest rate era focused on growth, CrowdStrike has also begun to pay much more attention to profits. In the last quarter it reported a net income for the first time. It is expected to deliver a full year of profitability next year.

So why is growth slowing? Note that Microsoft is making its presence known in cloud cyber security. The company was mentioned nine times in CrowdStrike’s last earnings call. Kurtz claimed customers prefer its products. But if the slowdown is competition-led it could become permanent.