Will CrowdStrike become a $1 trillion stock by 2040?

cloud strike (CRWD 0.19%) has generated significant profits since its listing in June 2019. The cybersecurity company went public at $34, valued at $6.7 billion, and currently trades at around $300, giving it a market cap of $70 billion.

Bulls liked CrowdStrike because it was disrupting older cybersecurity companies with cloud-native services that locked customers into fixed subscriptions and eliminated the need for on-site appliances. From FY2020 (ending January 2020) to FY2023, the total number of subscription customers more than quadrupled from 5,431 to 23,019, and annual revenue grew at a compound annual growth rate (CAGR) of 67%. Did.

This impressive growth rate is impressive, but will CrowdStrike continue to expand and become a $1 trillion company by 2040? Could the company rethink its business model and join the four-comma club? Let’s check if there is.

Image source: Getty Images.

CrowdStrike’s era of rapid growth may be over

Analysts expect CrowdStrike’s revenue to grow 36% in fiscal 2024, 29% in fiscal 2025, and 26% in fiscal 2026. These estimates should be taken with a grain of salt, but they do suggest that the company’s business is maturing in the face of more competitors.

for example, palo alto networks (PANW 5.33%) is expanding into the cloud security market with Prisma. microsoft We are rolling out more first-party cybersecurity services for cloud-based ecosystems. Cisco is integrating more cybersecurity services into its network equipment, and its smaller challengers are sentinel one seeks to automate the entire threat detection process using AI algorithms across a hybrid mix of on-site appliances and cloud-based services.

According to Global Market Estimates, the cloud-native network security market is likely to expand at a CAGR of 14% from 2024 to 2029. Mordor Intelligence expects the cloud endpoint security market, where CrowdStrike’s Falcon primarily operates, to grow at a CAGR of just 12% over the same period.

CrowdStrike may continue to grow faster than the industry as a whole as it expands its ecosystem and swallows up smaller competitors, but it will probably not be able to replicate the rapid growth rate it experienced from FY2020 to FY2023. You probably can’t. For stocks that are already experiencing growth, this gradual slowdown may be concerning. Next year’s sales will increase 23 times.

How fast will CrowdStrike grow over the next 16 years?

If CrowdStrike were to grow its sales at a CAGR of 20% from 2023 to 2040, its annual revenue would increase from $2.2 billion to $50 billion. If it trades at 20 times sales by then, its market cap could reach $1 trillion. That said, maintaining high growth rates and premium valuations will require near-perfect cards.

A more modest CAGR of 15% (which seems more realistic as it faces tougher competitive challenges and unpredictable macro headwinds) would push the company’s sales to $24 billion by 2040. will reach. This would be comparable if it were trading at a more reasonable 10x sales. At Palo Alto Networks’ current price-to-sales ratio, it could be worth about $240 billion.

Instead, focus on these core growth metrics

Simply put, CrowdStrike has a narrow but viable path to achieving a $1 trillion valuation by 2040—but slowing growth could easily make that lofty goal a reality. may not be achieved.

So instead of wondering if CrowdStrike can someday become a trillion-dollar company, investors should focus on customer growth and increased adoption of cloud modules. In the latest quarter, 42% of customers were using at least 6 modules, compared to 36% of customers a year ago. The company has also remained profitable on a generally accepted accounting principles (GAAP) basis for three consecutive quarters as it has controlled expenses and stock-based compensation.

These fundamental improvements demonstrate that the company’s ecosystem is stable and that it still has sufficient pricing power in a crowded cybersecurity market. Therefore, as a long-term investor in CrowdStrike, I believe that CrowdStrike can easily generate even more multibagger profits over the next 20 years. And I’m not worried about the possibility of Crowdstrike joining the 12 Zero Club in the distant future.