CrowdStrike CEO Says Clients Spot ‘Point Products Masquerading as Platform Stories’
CrowdStrike CEO George Kurtz said point product companies “are quickly going the way of legacy antivirus” as rivals SentinelOne and BlackBerry reportedly hunt for buyers.
Kurtz said the endpoint security market is quickly consolidating from being “littered with dozens of companies” to just several vendors as customers become more adept at identifying which vendors truly have broad platforms and which are just “point products masquerading as platform stories.” Deals are already coming CrowdStrike’s way due to uncertainty around BlackBerry and SentinelOne, Kurtz said.
“Point product, single-feature cloud security companies are learning the hard way that platforms built by design win at scale,” Kurtz told investors Wednesday. “Today’s competitive landscape solidifies CrowdStrike’s leadership position and turns what were once competitors into immediate share donors.”
The endpoint security space consolidated dramatically in 2022, which just four of the 19 largest vendors in the market gaining share, IDC found: Microsoft, CrowdStrike, Palo Alto Networks and SentinelOne. CrowdStrike took the silver with 15.1% market share after growing 56.2% last year, but lags Microsoft in both revenue and growth rate. SentinelOne grew by 84.5% in 2022, while BlackBerry grew by just 8.6%.
SentinelOne has been in the M&A crosshairs as of late, with Reuters reporting Aug. 21 that the company hired Qatalyst Partners to advise on talks with potential acquirers, and Bloomberg saying Friday that Wiz approached bankers to discuss the possibility of buying SentinelOne. In response, SentinelOne cancelled an existing alliance with Wiz and accused them of failing to execute against their sales commitments (see: Why a Wiz-SentinelOne Deal Makes Sense, and Why It Might Not).
‘Uncertainty is Never a Good Thing for Security Buyers’
Similarly, Reuters reported Friday that private equity firm Veritas Capital has made an offer to buy the entirety of BlackBerry, which consists of both endpoint security capabilities acquired from Cylance for $1.4 billion in 2019 as well as software for automobiles. The Reuters report comes four months after BlackBerry announced a strategic review that could result in separating one or more of its businesses.
“We’ve got customers that are very concerned about the uncertainty,” Kurtz said. “They’ve seen the Cylance BlackBerry movie before, and they’re concerned. Uncertainty is never a good thing for security buyers.” BlackBerry didn’t immediately respond to an Information Security Media Group request for comment.
Kurtz said CrowdStrike is “purpose-built” for a market where clients want to consolidate their security spend with fewer vendors since the company has pushed beyond endpoint security and now generates more than $500 million of annual recurring revenue from its cloud security, identity and SIEM practices. Given their size, he said each of those businesses could be “IPO-able” if they were a standalone entity.
“Platforms built by design win at scale.”
– George Kurtz, CEO, CrowdStrike
In the back half of 2023, Kurtz expects to see “great opportunities” around M&A as the environment for deal-making gets better. He said CrowdStrike will keep scrutinizing what’s required from an integration perspective to maintain a seamless, one platform approach. Calcalist reported in July that CrowdStrike was in advanced negotiations to purchase application security posture management vendor Bionic (see: Why CrowdStrike Is Eyeing Cyber Vendor Bionic at Up to $300M).
“We think the environment is getting better from an M&A perspective,” Kurtz said. “We’ll continue to drive innovation internally, and we’ll look externally for good companies with good culture.”
CrowdStrike Hits GAAP Profitability For Second Time in a Row
|Category||Quarter Ended July 31, 2023||Quarter Ended July 31, 2022||% Change|
|Professional Services Revenue||$41.7M||$29M||43.9%|
|Earnings Per Diluted Share||$0.03||-$0.21||N/A|
|Non-GAAP Net Income||$180M||$85.9M||109.4%|
|Non-GAAP Earnings Per Share||$0.74||$0.36||105.6%|
CrowdStrike’s revenue of $731.6 million in the quarter ended July 31 edged out Seeking Alpha’s sales estimate of $724.4 million. Meanwhile, the company’s non-GAAP earnings of $0.74 per share crushed Seeking Alpha’s non-GAAP estimate of $0.56 per share. CrowdStrike achieved GAAP profitability for the second time in company history, coming just three months after crossing the threshold the first time.
The company’s stock climbed $2.32 – 1.56% – to $151.50 per share in after-hours trading Wednesday. That’s the highest CrowdStrike’s stock has traded since Aug. 23.
For the fiscal quarter ending Oct. 31, CrowdStrike expects non-GAAP net income of $179.8 million to $181.8 million, or $0.74 per share, on revenue of between $775.4 million to $778 million. That beats analyst expectations of earnings of $0.60 per share on revenue on $774.4 million, according to Seeking Alpha.