Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
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CrowdStrike earnings and the never ending growth in cyber security
Peter Garnry
Chief Investment Strategist
Summary: The cyber security industry has been the second best performing theme in equity markets this year driven by strong demand and higher profitability. CrowdStrike reports earnings today with analysts remaining bullish expecting revenue growth of 34% and new record on free cash flow. A better than expected earnings result from CrowdStrike tonight could lift the entire industry in tomorrow's trading session. We remain positive on the industry expecting revenue growth to remain well above 15% annualised in the coming years and we expect consolidation to accelerate in the coming years improving profitability in the industry even further.
CrowdStrike is well positioned for growth
CrowdStrike is the fifth largest cyber security company in the world measured on revenue and reports FY24 Q3 (ending 31 October) earnings tonight after the US market close. Analysts remain bullish on the company with revenue growth expected at 34% y/y and EBITDA rising to $184mn from a loss of $31mn a year ago. The company is also expected to deliver a new all-time high on free cash flow underscoring that the company has hit an inflection point in terms of profitability which has been rewarded by the market with the share price up 99.5% this year.
CrowdStrike is the category leader in what is called corporate endpoint security which have served them well with their Falcon Platform. CrowdStrike has delivered 37% annualised revenue growth since Q1 2018. One risk for CrowdStrike is their lack of SASE exposure which is this new delivery model in cyber security – see the explainer below for the difference in traditional cyber security and the new SASE model where companies such as Zscaler and Palo Alto Networks (the largest cyber security firm on revenue) are dominating.
Higher growth for longer and consolidation
The cyber security industry continues to be one of our favourite themes and it is also the second best performing theme basket this year up 38%. Revenue growth among the stocks in our cyber security basket is 24% over the past year which is impressive given the slowing economy hit to consumption due to high inflation. It shows that cyber security growth has little correlation to the overall economy and has become a necessity for companies and governments. The increase in cyber security attacks and the extended damage if breached drive the demand for cyber security products and services. Another feature of the industry is that it is still fragmented and the consensus believes that there will be a bigger consolidation over the coming decades benefitting the largest players in the industry. Latest Market Insights
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