In need of a spark, the IPO market may have found an igniter in CrowdStrike's (CRWD) highly sought-after deal. Last week, the expected price range for the cyber security company's IPO was raised sharply to $28-$30 from $19-$23. Then, this morning the 18 mln share deal priced well above the upwardly revised price range, coming in at $34/share.
In all, the IPO generated $612 mln in total gross proceeds, a whopping 62% more than anticipated.
In the aftermath of Lyft's (LYFT) troubled IPO, investment banks have taken a more conservative approach regarding price ranges for higher-profile deals. For example, Uber (UBER) was once expected to command a market cap around $120 bln once it launched its IPO. But at the $45/share IPO price, its market cap was about $75 bln, giving it a more reasonable trailing P/S of 6.8x.
However, even with the more conservative pricing, UBER still stumbled out of the gate.
Looking to avoid another high-profile disappointment, Beyond Meat's (BYND) underwriters (Goldman Sachs, JP Morgan, and Credit Suisse) set the price range far below where actual demand was. It opened for trading at $46 and launched all the way up to $186, leaving a substantial amount of capital on the table.
Circling back to CRWD, it hired some of the same underwriters as BYND, including Goldman Sachs and JP Morgan. The other two banks behind the deal were BofA Merrill and Barclays. Based on the magnitude of the increased price range, it appears the investment banks once again set the bar too low.
At least this time, though, the price range was ratcheted significantly higher, decreasing the amount of money left on the table.
The stock is set to open for trading later this morning on the Nasdaq.
Overview & Financials
CRWD is a developer of cyber security software tailored for the cloud era. It's taking what it sees as a new approach. CRWD leverages the network effects of crowdsourced data applied to modern technologies such as artificial intelligence (AI), cloud computing, and graph databases. Its CrowdStrike Falcon platform was built to detect threats and stop breaches.
The company believes it's defining a new category called the Security Cloud, with the power to transform the security industry much in the same way the cloud has transformed the CRM, HR, and service management industries. Its Falcon platform protects workloads across on-premise, virtualized, and cloud-based environments running on a variety of endpoints such as laptops, desktops, servers, virtual machines, and IoT devices.
CRWD makes the point that companies are becoming more distributed as they adopt the cloud, increase workforce mobility, and grow their number of connected devices. They are adding more workloads to a myriad of different endpoints beyond the traditional security perimeter, exposing an increasingly broad attack surface to adversaries.
CRWD says it founded its company (in 2011) on the principle that the future of security would be driven by AI and that a cloud-native architecture would enable the collection of high fidelity data for an effective solution, which it calls cloud-scale AI. Its strategy is focused on collecting data at scale, centrally storing such data and training its algorithms on these vast amounts of data, which CRWD believes is a fundamental differentiator from its competitors. Its cloud-scale AI means that the more data that is fed into the Falcon platform, the more intelligent Threat Graph becomes, and the more customers benefit.
CRWD recently announced a strategic technology and go-to-market partnership with Dell that will enable Dell's customers to add the Falcon platform to their purchase of Dell hardware. In addition, Dell and SecureWorks have agreed to take the Falcon platform to market as a preferred endpoint security offering through their global sales organizations.
Taking a quick look at the financials, the company is not yet profitable, and it looks like it's going to be a while before it is. However, revenue growth has been impressive, with revenue growing from $52.7 mln in FY17 to $118.8 mln in FY18 to $249.8 mln in FY19 (Jan 31). Its annual recurring revenue (ARR) has grown from $58.8 mln in FY17 to $312.7 mln in FY19. CRWD provided guidance for Q1 (Apr) with revenue of $93.6-95.7 mln (+98-102% yr/yr).