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CrowdStrike just wrapped up its first trading day on the Nasdaq stock exchange with stunning results. Shares of the company soared by almost 100 percent before relaxing down a bit at close to $63.50.
Given the IPO price of $34, today was good for a 70.6 percent return after its first day on the market. Compared to recent disastrous IPOs from Lyft and Uber, CrowdStrike's excellent showing stands in stark contrast, and it may not be very mysterious as to why the results were different this time around.
Founded in 2011 by CEO George Kurtz and some partners, Crowdstrike is a cybersecurity firm that touts itself as "cloud native" and "AI-powered". The company offers cloud-based security systems and claims to be the "fourth pillar of cloud computing".
The company advertises its ability to prevent breaches before they happen as a core function and they may very well be the first security solution that is focused on cloud computing. In fact, CEO Kurtz believes they are something of a "Salesforce for security".
CrowdStrike now operates in 170 countries, counts some nation-states as clients, and while perhaps the firm is not a household name, it has been involved in some rather high-profile events. Probably the most recognizable these would be the 2016 Russian hacks into the U.S. Democratic National Party's servers which CrowdStrike helped investigate links back to Russian intelligence agencies. Further, CrowdStrike (NASDAQ:CRWD) released a report in December 2016 which came to the conclusion that Russia was using the ArtOS app to hack Ukranian artillery units. Both the International Institute for Strategic Studies and the Ukranian government quickly denounced the report as false and/or full of mischaracterizations.
Regardless of those highly visible public events, the company is growing at a rapid clip and counts some major companies as its current customers including Amazon's AWS, Sony, and Credit Suisse. It's 2019 fiscal year, ended Jan 31. showed revenues that more than doubled to $250 million, while it lost $140 million.
Compared to Uber's IPO
A 70.6 percent gain on its first day is quite the showing, even for a promising tech unicorn like CrowdStrike. Some might say this isn't even that unusual until you figure that when you look at some recent high-profile tech IPOs, CrowdStrike is truly deserving of being called a unicorn.
In what will certainly stand as the year's largest IPO, Uber took to the stock market and commanded a valuation north of $80 billion. Despite all the hype, Uber (NYSE:UBER)tanked during its first few days on the market, leaving many investors bag holding a stock that lost 20 percent of its value during its first day. Uber has recovered to its IPO level about a month later, but IPO buyers haven't made any money yet and questions continue to swirl about the company's profitability, which is probably the difference we are seeing today compared to CrowdStrike.
Uber lost $1.8 billion dollars in 2018. Granted, the company hauled in over $11 billion in revenue, but multiple years of multiple billion dollar losses ($2.2B lost in 2017) means the company needs to complete a massive turnaround in order to merely become profitable. A turnaround of this magnitude should take several years, even for a company like Uber that can instantly change the prices it charges and the cut it takes from drivers. Remember, its chief rival Lyft also entered the fray in April and while it too is suffering from similar profitability concerns, a price increase by Uber would instantly push millions of riders into the waiting arms of its competitor. Uber needs structural changes throughout its organization and product offering in order to drag itself into the black, and that will take years.
And therein lies the problem, at least as many investors may see it. We are treading in very uncertain waters, economically speaking. The U.S. and China are at each other's throats in a worsening trade spat, and other global indicators seem to be pointing to a coming recession that could be the end of the record bull-run the market has been enjoying since 2009. Can anyone say that Uber will have several years of economic "good times" afforded to it for its massive turnaround?
When we compare Uber's situation to CrowdStrike's we can see a night-and-day difference. CrowdStrike recently doubled their revenue, while losing $140 million during the same period - keep that figure in mind for this next fact. CrowdStrike's also spending a huge amount on sales and marketing, almost $173 million.
Marketing is key to any product and service company, but this can be dialed down massively once a company begins to mature. Word of mouth referrals, from giants like AWS, go a long way, and in this industry, CrowdStrike is quickly gaining traction so the need for big spending on marketing will diminish as customer relationships are developed even further with a maturing product stack. Not to be left unsaid, their pace of growth will naturally have an ill-effect on profitability, similar to what we saw with Amazon in years gone by. As revenue growth starts to level-off the company can adjust its business to reflect the proper amount of investment into the business to sustain itself.
Of course, anytime an IPO pops to the tune of 100 percent (intraday) and finally over 70 percent, it becomes obvious that the company didn't properly do its homework when building its IPO book. It simply undervalued itself and the market adjusted this accordingly.