CrowdStrike files to go public

Next-generation endpoint security provider CrowdStrike has released its IPO prospectus and filed to go to public.

Following the $1.4 billion acquisition of rival Cylance late last year, we’ve been wondering what’s next for CrowdStrike. Rumours of an IPO have been circulating for some time, but CrowdStrike would’ve been far from the only company to change tack and go the acquisition route after big IPO plans – AlienVault and LogRhythm, both acquired last year, spring to mind as examples.

But in this case, the rumours have turned out to be right. The plan is for CrowdStrike to list its Class A common stock on the Nasdaq under the ticker “CRWD”, with each share worth one vote. Class B shares, worth 10 votes each, are held by insiders.

Since its foundation in 2011 by McAfee alumni George Kurtz and Dmitri Alperovitch (CEO and CTO of CrowdStrike, respectively), the company has raised more than $480 million in venture capital funding, with the most recent round (Series E) bringing in $200 million of that. Key investors include Warburg Pincus, Accel and CapitalG (formerly Google Capital), which respectively own 30.3%, 20.3% and 11.2% of the company pre-IPO.

According to its registration statement, CrowdStrike – valued at $3.3 billion in 2018 – brought in total revenue of approximately $250 million in fiscal 2019 (year ending January 31 2019), up from approximately $119 million in the previous year. Subscription revenue grew by 137% compared to fiscal 2018, and annual recurring revenue grew by 121%.

However, spending has also risen, with almost $300 million reported for the last year, over half of which was spent on sales and marketing. Net loss came to $140.1 million, compared to $135.5 million in fiscal 2018 and $91.3 million in fiscal 2017.

“We expect to continue to incur net losses for the foreseeable future as we continue to invest in our business, and our sales capabilities in particular, to address our large market opportunity,” the company said in its statement.

Not being profitable isn’t necessarily a barrier to a successful IPO. In the last year many unprofitable companies which went public have done better than profitable ones. And CrowdStrike may be in a particularly good position, as cybersecurity IPOs have generally performed well: Zscaler, Carbon Black and Tenable all went public last year, and surged well above their initial IPO prices, with Zscaler being named as ‘the best performing tech IPO of 2018’.

However, there’s reason to be cautious. 2019 has seen several tech unicorns go public, including fellow unprofitable companies such as Uber, Pinterest, Lyft and Zoom. Pinterest and Zoom both had successful IPOs and are continuing to do well, though Pinterest shares have begun to fall and a more cautious attitude is emerging. As for Uber and Lyft, recent headlines such as “If You Stupidly Invested $1,000 in the Uber IPO, Here’s How Much You Threw Away” say it all.

And while cybersecurity IPOs themselves have been good performers, we’ve talked before about the dangerously high valuations of tech companies, and the disappointment that follows when those companies fail to withstand the scrutiny of public markets. Zscaler’s stock has consistently performed well, but both Carbon Black and Tenable have seen prices fluctuate significantly.

In its statement, CrowdStrike includes McAfee, Symantec, Cylance, Carbon Black, Palo Alto Networks and FireEye among its competitors. Though optimistic about its potential for continued growth, one of the risks it warned about was the fact that several of these companies have been around longer, have greater resources, and more existing customers.

While there’s no point trying to compare its figures to those of industry giants such as Palo Alto, when looking just at fellow next-gen providers CrowdStrike’s 2018 valuation is over twice Carbon Black’s market cap of $1.4 billion and Cylance’s acquisition for the same price. CrowdStrike also beats both Carbon Black and Cylance on reported sales.

And it hopes to keep on growing and innovating, having recently announced an enterprise endpoint detection and response solution for mobile devices (potentially setting it up for even closer competition with BlackBerry-owned Cylance), and a partnership with Dell and Secureworks, as part of which “every global business-to-business (B2B) Dell customer purchasing desktops or laptops will have the ability to add CrowdStrike through the Dell Safe Guard and Response offerings”, among other benefits.

Plans for further international expansion are also on the cards. According to CrowdStrike, 77% of total revenue in fiscal 2019 was generated from US-based customers, but international revenue has been growing rapidly (increasing 196% from fiscal 2018 to 2019). The company plans to increase headcount in EMEA, APAC and Japan, and with much of the basic infrastructure for that now in place, as penetration in these markets grows the resulting revenues may well grow faster than the spend it requires.

Our own research into the European security market, soon to be released, certainly leaves that looking likely: CrowdStrike ranks alongside and indeed ahead of several of ‘the big boys’, and was named the best fit for participants’ priorities among the highly lucrative financial sector.

It’s early days yet – but even taking into account the shadow Uber and Lyft’s flops have cast over the market, CrowdStrike looks well-positioned for a successful IPO.

Researcher, writer, recovering medievalist. Currently particularly interested in the cybersecurity solutions market, cyber insurance/risk modelling, and IoT security.

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