Liquidity Public Markets

CrowdStrike Files S-1 On Strength Of Huge ARR Growth, Sticky Net Losses

Today CrowdStrike, a cybersecurity startup that offers anti-virus protection and threat monitoring for corporations, has filed its S-1. According to Crunchbase, the Sunnyvale, CA-based company has raised a total of $481 million. Its last known round was a $200 million Series E announced on June 19, 2018, pegging the company’s pre-money valuation of $2.8 billion.

Known investors who would benefit from a successful public exit include Accel, IVP, General Atlantic, and CapitalG, the corporate growth fund arm of Google. Rumors of CrowdStrike going public were reported by TechCrunch nearly a year ago. TechCrunch also noted at the time that the company was doubling its revenue and served “over 16 percent of Fortune 1000 companies and 20 percent of companies in the Fortune 500.”

Now, with the help of CrowdStrike’s S-1, we can figure out just what that translates into in terms of revenue. And when it goes out, we will also be able to gauge how public investors react to a new cybersecurity offering amid broader market turbulence.

Profits, Loss

CrowdStrike sells software as a service (SaaS), meaning that it is accumulating recurring revenue over time. We’ll get into the SaaS-side of its business later, however. To start, let’s look at the firm’s yearly results.

The CrowdStrike fiscal calendar ends each year on January 31. This is a common setup among enterprise-facing companies, as it allows sales teams to close out their fourth quarter in January, a month in which folks are actually at work. December is good for retail, but bad for business-to-business sales.

So, in the year ending January 31, 2017, CrowdStrike put up $52.7 million in revenue, leading to a $91.3 million net loss. In its next fiscal year, the firm managed $118.8 million in revenue while losing $135.5 million on a net basis.1 And in the fiscal year ending January 31, 2019, CrowdStrike grew to $249.8 million in revenue, leading to a $140.1 million loss.

The firm has effectively quintupled in the last few years at the cost of huge net deficits. Indeed, the company’s costs have long-outstripped its ability to pay for them with its own income. In the fiscal year ending January 31, 2018, CrowdStrike managed to generate operating expenses of $195.7 million against just $64.3 million in gross profit. Things improved from a greater than three-to-one overspend to something closer to a double in the fiscal year ending January 31, 2019, when CrowdStrike put up operating expenses of $299.5 million against gross profit of $162.6 million.

These are improvements, of a sort.

SaaS Metrics

Of course, steep deficits in the name of growing recurring revenue won’t bother SaaS fans. Recurring revenue, usually presented in terms of “annual recurring revenue” or “ARR,” is how CrowdStrike talks about its recurring top line.

From page 18 of its S-1, here’s the riff:

Let us help with what those numbers mean. First, CrowdStrike has lots of ARR. Starting off calendar 2019 with $312 million in ARR is a great place to be if you started your preceding fiscal year with less than half that figure. Doubling and better your ARR in a single year at scale is a very good result.

Points to CrowdStrike, in other words. You’ll also note that the firm’s most recent fiscal year’s ARR growth (121 percent) is slower than the result from the preceding fiscal year (140 percent), but higher than what it managed two years ago (110 percent). Normally, percentage growth figures slip over time as a company’s revenue base grows.

How did CrowdStrike manage such the acceleration that we see in our table? I have a hunch. Let’s examine the company’s dollar-based net retention rate. This metric measures how much more money existing accounts spend with CrowdStrike over time:

Looking at those results, we see three very different numbers. A 104 percent net retention rate of a company selling big software to other large firms is ok; a 119 percent net retention rate is good; and a 147 percent net retention rate is very good. So, over time, CrowdStrike has managed to wring more dollars out of its existing accounts.2

The above metrics help us understand the pace of growth that we first saw from CrowdStrike. Now, let’s give ourselves one more stab at losses before we let go.


While CrowdStrike has stiff net losses, its cash burn is harder to figure out.

Broadly, the firm has had negative operating cash flow, investing cash flow and free cash flow in every year we have detailed. However, the firm’s investing cash flow is often negative due to the firm purchasing marketable securities, making it an unreliable narrator.

Operating cash flow improved in the firm’s most recent fiscal year, from the $50 million to $60 million range, to a smaller $23 million deficit in its most recent fiscal year. What changed? It’s a bit hard to tell. The firm notes $49.3 million in costs removed from its net loss “changes in operating assets and liabilities” that are hard to chase down. Regardless, the firm’s net loss got worse in its most recent fiscal year, but its operating cash burn got better. More when we can find it.

What’s Next

CrowdStrike has a $100 million placeholder scribbled down in its S-1. Expect the firm to spend a lot more than that when it does go public. After all, this company is years from profits and most likely will need the capital. But with slowing operating cash burn, and a net loss that is rapidly scaling down in percent-of-revenue terms—plus strong SaaS metrics—this IPO should be a go.

  1. We’re discounting the impact of “[a]ccretion of redeemable convertible preferred stock” for now, leaning on GAAP net loss figures instead.

  2. And unless I am missing something, CrowdStrike’s net retention calculation doesn’t discount churned accounts. Peep at page 18 in the S-1.

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