CRWD • 10-Q • Q3 2022 • Positive

CrowdStrike Shows Robust Growth but Operating Losses Persist Despite Scale

November 30, 2022 • 1 min read

TL;DR

CrowdStrike delivered 52.8% YoY revenue growth to $580.9M in Q3, demonstrating continued strong demand for cybersecurity solutions. Subscription revenue grew 53.3% YoY while maintaining 75.5% gross margins, though operating losses widened to -$56.4M. Strategic investments in R&D increased 59% YoY to $155.3M as the company aggressively expands product capabilities. The combination of high growth and persistent losses suggests CrowdStrike is prioritizing market share over near-term profitability i

Financial Performance Overview: Revenue growth remained strong at 52.8% YoY, with subscription revenue comprising 94.2% of total revenue. Gross margins held steady at 72.8% despite inflationary pressures, though operating margins deteriorated to -9.7% from -10.6% in Q3'21. R&D expenses grew faster than revenue at 59% YoY, indicating aggressive investment in product development. Deferred revenue growth of 30.5% YoY to $1.48B suggests healthy future revenue recognition, though the growth rate has moderated from previous quarters.
Strategic Initiatives and Operational Changes: Management increased strategic investments by 96.3% YoY to $46.4M, focusing on ecosystem expansion and technology partnerships. Property and equipment investments grew 65% YoY to $430M, reflecting infrastructure scaling for cloud operations. The company's acquisition strategy remains selective, with goodwill increasing only modestly by 3.3% to $430.3M. These investments align with CrowdStrike's platform expansion strategy but may pressure margins in the near term.
Market Position and Competitive Dynamics: Deferred revenue growth outpacing operating expense growth (30.5% vs 50.3% YoY) suggests potential pricing pressure or longer sales cycles. Cash position strengthened to $2.47B, providing substantial runway for strategic investments and M&A. Professional services revenue growth of 45.5% YoY indicates strong implementation demand but remains a small portion of total revenue at 5.8%. The company appears to be investing aggressively to maintain its leadership position against both legacy and emerging competitors.
Operational Efficiency and Profitability: Sales and marketing expenses grew 45.3% YoY to $239.7M, representing 41.3% of revenue - an improvement from 43.4% in Q3'21. Gross margin on subscription revenue remained strong at 75.5%, though slightly down from 76.1% YoY. Operating leverage remains elusive as total operating expenses grew faster than revenue at 50.3% YoY. The company's continued high investment levels suggest management expects significant future growth opportunities.
Growth Catalysts and Material Risks: Interest income surged to $16.2M from $1.0M YoY, helping offset operating losses. Long-term debt remains stable at $740.6M with minimal change YoY. Accounts receivable growth of 31.8% YoY lagging revenue growth could indicate improving collections efficiency. Key risks include intensifying competition, potential cybersecurity incidents affecting reputation, and macroeconomic headwinds impacting customer IT spending.

Revenue

$580.9M ( YoY, QoQ) with from subscriptions

↑ +52.8%

Net Loss

-$54.6M (vs -$50.5M YoY) with operating margin

↓ -9.7%

Rd Spend

$155.3M ( YoY) representing of revenue

↑ +59%

Gross Margin

(-70bps YoY) with subscription margins at

↑ 72.8%

Cash Position

$2.47B ( YTD) providing strategic flexibility

↑ +23.5%

Operating Margin

(-90bps YoY) reflecting continued growth investments

↓ -9.7%

Growth Indicators

$1.48B ( YoY)

↑ +30.5%

Professional Services ↑$33.5M (+45.5% YoY)

Strategic Investments ↑$46.4M (+96.3% YoY)

Key Risks

Operating losses widening despite revenue scale
Competitive pressure requiring sustained high investment levels
Macroeconomic headwinds affecting customer IT spending
High valuation requiring continued strong execution

Key Opportunities

Adjacent market expansion through platform strategy
Operational leverage potential from improving sales efficiency
Strategic M&A enabled by strong cash position
International market penetration opportunities

Bottom Line

CrowdStrike's Q3 results demonstrate the company's commitment to growth investment despite near-term profitability impact. Strong revenue growth and robust deferred revenue indicate healthy demand, while aggressive investments in R&D and infrastructure position the company for continued expansion. The key challenge remains balancing growth investments with path to profitability in an increasingly competitive landscape.