It’s been a hot market for “New Enterprise SaaS” companies and CrowdStrike (CRWD) has added fuel to the fire by pricing their IPO last night at $34 – that compares to the original $19-23 filing range!

CrowdStrike has certainly positioned themselves aggressively as the “new enterprise cloud” for information security. By doing so they put themselves in the company of other enterprise SaaS success stories like Salesforce, ServiceNow and Workday.

CrowdStrike Swings for the Fences

Special Sauce

CrowdStrike is benefiting from being the new kid on the IT security block because they’ve been able to build their product from the ground up to be in the cloud and address the current shortcomings of other, older offerings.

There are two core features that they are building on:

  1. When it comes to security threats every second counts. Sharing information across the cloud means that CrowdStrike can get smarter faster when it comes to detecting and responding to new threats. Many other vendors rely on “signatures” but hackers can invent new ones faster than these solutions can keep up. Traditional anti-virus and firewall software doesn’t have this “collective intelligence” and lacks the ability to respond quickly to new security threats.
  2. A small single agent that can be deployed quickly and easily to many endpoints provides a high level of security without huge sacrifices in performance and the operational headaches that come from trying to manage too many agents and performance issues.

Management has multiplied these advantages with a 1) a broad and effective distribution strategy that includes both direct and channel sales and 2) a broadening set of features within IT security that enables them to sell more into their existing base of customers.

Industry analysts have given CrowdStrike “Leader” status which gives them major credibility in the enterprise market for what relatively small company.

Forrester “Wave” for Endpoint Security.

We can expect to see some response from competition given the valuation the market is putting on CRWD. It also makes us wanted to take another look at Carbon Black (CBLK).

Valuation and Market Opportunity

Their expanded breadth of products has allowed CRWD to credibly expand their TAM opportunity. IT Security will be a strong growth area for the foreseeable future given the increasing reliance on digital infrastructure for doing business. IT security is a “must have” budget item within IT spending. With a $30B TAM, the current revenue base of ~$300M has plenty of room to grow.

Credible expansion of TAM based on new product modules.

However, as our PFV model shows the company has taken quite a bit of upside off the table (at least in the near term) by pricing their IPO at $34. We can’t blame them though. Right now the *average* P/S multiple for the NE SaaS space is 21x trailing revenue and 14x forward revenue estimates.

Of course, Zoom Video (ZM) is trading at 78x TTM revenue which makes no sense. Closer to home Zscaler (ZS) is trading at 33x trailing and 23x estimated forward revenues. So CRWD is in line with that. If we apply the 33x multiple to CRWD TTM, we get a $40 price target. Chances are it will open and trade above that today.

CrowdStrike is getting a high value on Day One.

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