CrowdStrike Holdings (NASDAQ:CRWD) released its first quarter report on Thursday, June 2. Revenue for the cloud-native cybersecurity company rose 61% year-over-year to $487.8 million, beating analyst estimates of $23.5 million.

Its first-quarter adjusted net income jumped 221% to $74.8 million, or $0.31 per share, which also beat consensus guidance by eight cents. According to generally accepted accounting principles (GAAP), it reduced its net loss from $85 million to $31.5 million.

Those growth rates were impressive, but can CrowdStrike shares regain their mojo after falling more than 40% from their all-time high last November? Let’s see if this fallen growth stock is worth buying back.

Image source: Getty Images.

How fast is CrowdStrike growing?

CrowdStrike’s cloud-native Falcon platform eliminates the need for on-premises security appliances, which typically take up a lot of space, are expensive to maintain, and difficult to scale as an organization grows. This disruptive approach has attracted many customers and made CrowdStrike one of the fastest growing cybersecurity companies in the world.

During the first quarter, the total number of customers subscribing to CrowdStrike grew 57% year-over-year to 17,945. Its annual recurring revenue (ARR) increased 61% to 1.92 billion of dollars. These growth rates have remained remarkably robust over the past year.

Growth (YOY)

Q1 2022

Q2 2022

Q3 2022

Q4 2022

Q1 2023

Subscribed customers

82%

81%

75%

65%

57%

ARR

74%

70%

67%

65%

61%

Revenue

70%

70%

63%

63%

61%

Data source: CrowdStrike. YOY = year after year.

It’s still landing and expanding

CrowdStrike’s Falcon platform hosts over 20 different cloud-based modules. It initially provides a trial version of four modules, which supports its “land and expand” strategy of selling more modules.

The percentage of Falcon customers who have used four, five and six or more modules has steadily increased over the past year. This expansion has allowed CrowdStrike to maintain its net dollar retention rate above its “benchmark” level of 120% since its IPO in 2019.

Period

Q1 2022

Q4 2022

Q1 2023

More than 4 mods

64%

69%

71%

5 modules and more

50%

57%

59%

6 modules and more

27%

34%

35%

Data source: CrowdStrike.

In Q1, CrowdStrike also revealed that its percentage of customers who deployed seven additional modules had risen to 19%.

Stable gross margins and rising operating margins

The growing rigidity of CrowdStrike’s subscription-based ecosystem gives it considerable pricing power over its cybersecurity peers. As a result, its gross margins have consistently remained in the low 70s, by both GAAP and non-GAAP measures, over the past year.

Underwriting gross margin

Q1 2022

Q2 2022

Q3 2022

Q4 2022

Q1 2023

GAAP

77%

76%

76%

76%

77%

Non-GAAP

79%

78%

79%

79%

79%

Data source: CrowdStrike.

CrowdStrike’s operating margins also continued to improve on both GAAP and non-GAAP metrics as its operations grew.

Operating margin

Q1 2022

Q2 2022

Q3 2022

Q4 2022

Q1 2023

GAAP

(ten%)

(14%)

(11%)

(5%)

(5%)

Non-GAAP

ten%

ten%

13%

19%

17%

Data source: CrowdStrike.

It expects its non-GAAP operating margins to eventually reach 20% to 22% over the “long term”. This continued expansion suggests that CrowdStrike may eventually become profitable on a GAAP basis.

Sunny prospects and a reasonable valuation

CrowdStrike now expects revenue to grow 52% to 53% year over year in the second quarter and 51% to 52% for the full year. That was significantly higher than its previous full-year forecast for revenue growth of 47% to 49%.

It expects its non-GAAP net income to rise 151% to 162% year over year in the second quarter and 76% to 83% for the full year. It was also higher than its previous full-year forecast for net profit growth of 56% to 70%.

During the conference call, CFO Burt Podbere said CrowdStrike raised its full-year guidance as it remained “optimistic about demand for our offerings, our record-breaking pipeline and our ability to execute the powerful secular trends that supply our markets”.

CrowdStrike shares are trading at around 18 times its new FY2023 sales forecast. This price-to-sales ratio may seem high, but it’s in line with other high-growth cybersecurity companies like Z-scale (NASDAQ: ZS) and SentinelOne (NYSE: S). Zscaler, which expects to increase its revenue 60% this year, is trading at 21 times this estimate. SentinelOne, which expects revenue to nearly double this year, is trading at 17x forecast but still remains deeply unprofitable by non-GAAP measures.

Is it time to buy CrowdStrike?

CrowdStrike shares could remain volatile this year as rising interest rates drive investors away from higher-growth stocks. However, I strongly believe it is a solid investment in the secular expansion of the cybersecurity industry – and could still yield massive returns for patient investors.

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Leo Sun has positions in CrowdStrike Holdings, Inc. The Motley Fool has positions in and recommends CrowdStrike Holdings, Inc. and Zscaler. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.