CrowdStrike shares drop despite revenue jump

CrowdStrike shares are trading lower despite a 42% jump in revenue, year-over-year. George Kurtz, CrowdStrike's CEO, discusses the company's outlook and what lies ahead for cybersecurity industry at large.

Video transcript

JULIE HYMAN: We've got shares of CrowdStrike moving lower by about 2% today. Stock fell yesterday as well after the company's 42% jump in revenue from last year. But that wasn't enough to convince investors who were focusing on billings. The stock fell double digits following the cybersecurity company's first quarter earnings, despite its upbeat outlook.

Crowdstrike CEO George Kurtz is with us now with more on this. George, thanks for joining us. It's good to see you. So talk us through. It seems as though the Street was sort of focusing on billings here. But I'm guessing you think probably that attention was misplaced. So now that you've had sort of a day, talk to us about how you're thinking about the sort of perception of the numbers.

GEORGE KURTZ: Yeah. Look, I think we had a strong quarter, particularly in a challenging macro environment. And if you look at what we posted in terms of revenue and non-GAAP and now GAAP profitability for the first time, which was a record-- record free cash flow-- these are all strong metrics.

And as we've always talked about, in particular, our CFO, Burt Podbere, ARR is really the best proxy. As a company, we really don't even focus on billings. And when you think about billings, it's just timing issues. So ARR is really the best. Proxy and I think, overall, it was a strong quarter and it's beaten raise.

RACHELLE AKUFFO: And George, Rachelle here. Being a cloud-native platform, you were able to grow the company a lot faster when we compare where you were when you first went public. And a lot of investors still looking for that next phase of the growth story here. Do you think that's a fair yardstick to measure the company by based on where the company is right now?

GEORGE KURTZ: Well, if you look at growth and growth and profitability put together, on a rule of 40 basis, we're 75. And keep in mind, were $2.7 billion in annual recurring revenue. So to be able to have a rule of 40 at 75% from a free cash flow basis, it's absolutely incredible. We continue to drive growth because we continue to drive innovation and customer adoption.

We've got many things that are coming into play. Some of the other areas, emerging areas for us are log management and XDR or SIEM. Identity is a big area. So cloud, of course. We've done extremely well in those areas. And we continue to drive new routes to markets with our managed service providers, Dell relationship, AWS, et cetera. So we feel pretty good about our prospects, and it really has to come back to customer adoption and wanting to stop breaches.

BRAD SMITH: George, over the course of this earnings season, we've heard a ton of talk about artificial intelligence. Some of it actually seems attainable, depending upon how executives are speaking about it and how it's going to be a benefit to their business.

And some of it just seems like it's contributing to the hype phase because in those instances, it's almost like you could take out AI and reinsert metaverse or reinsert blockchain or whatever the hype of that or the flavor of that time would be. But for Crowdstrike, how do you see this actually coming to fruition? This was discussed within your own earnings and on the call as well.

GEORGE KURTZ: Well, you're absolutely right. There's a lot of hype around AI, and a lot of people kind of throw the term around. I actually started the company based upon AI back in 2011. Now, AI has advanced into generative AI, but this is not something new for Crowdstrike. We have deep DNA in this area, deep expertise.

And what I was talking about, specifically in our earnings call was generative AI, which we launched called Charlotte AI, which is a virtual security analyst, if you will. And it takes the collective knowledge of CrowdStrike and puts that in the hands of our analysts. And really, what that is focused on is allowing customers to interact with our technology in a different way.

Typically, a customer will come into the user interface, click around, do some alerts, look at some alerts, et cetera. Now you can actually have a conversation and drive workflows, which we call generative workflows within the product. So we're really excited about it. We previewed it with some customers. They were extremely excited about it. And I think it's going to be a game changer for Crowdstrike.

JULIE HYMAN: George, I know it's very early days. As you said, you're just previewing it with people, they're excited about it. Can you put any numbers around it? I mean, how is that-- is it a bolt-on offering to what they are already buying from Crowdstrike? Can you talk to us about the cost? And how many folks are signing to actually get this?

GEORGE KURTZ: Yeah. Right. Well, it's in preview right now. So we've got folks looking at it, trying it out, et cetera. So really, the way we're looking at it is, it's a foundational platform element. So it'll be part of the platform, which will drive additional module adoption. We talk about the number of modules that we attach over quarter by quarter. And they continue to increase. So basically, it makes our product better, faster, cheaper, stickier, and drives down the cost for our customers.

We'll look to have additional monetization in the future. But just by having it in the product, that's going to drive additional module adoption. The second piece of that is, we've pioneered this. We use this internally with things like our Falcon Complete service. And it helps drive additional incremental margin revenue, which as you probably seen from our earnings call, we had record gross margin an 80% non-GAAP gross margin. That is substantial and drives bottomline results.

RACHELLE AKUFFO: And George, CrowdStrike is in an interesting position because not only can you use AI, generative AI within your own company, but also you have a lot of companies trying to beef up their cybersecurity as well, which then also get to benefit from. Talk about the adversarial relationship that comes with some of these bad actors that are entering AI, generative AI, and how Crowdstrike is positioned for that.

GEORGE KURTZ: Sure. [AUDIO OUT]

BRAD SMITH: George?

JULIE HYMAN: It looks like we might-- George, do we still have you? Well, it looks like, unfortunately, we had a little bit of a frozen shot there. I was really interested. They talked about this on the call a little bit, by the way, what Michelle was just asking about. The idea that, unfortunately, bad actors are getting more sophisticated because they're able to use AI and generative AI as well.

And he talked about on the call, he and colleagues about on the plus side, if you are an analyst with a certain level of training, you can really up your capabilities with this. But on the flip side, a bad actor who doesn't have as much expertise can also increase their abilities using AI and generative AI, specifically.

BRAD SMITH: It also serves as a solid reminder in what George was just mentioning a moment ago, artificial intelligence as related to cybersecurity is not new.

JULIE HYMAN: Right.

BRAD SMITH: I've sat inside--

JULIE HYMAN: But it's the large language models and how they apply to it that right now.

BRAD SMITH: And how quickly that could actually turn around code to block other instances where they're already going out and being able to kind of safeguard against vulnerabilities there. And so the ability to write code that quickly to patch up vulnerabilities, that is good for cybersecurity on the other side and on the same side where you've already got these AI or cybersecurity command centers that have already leveraged AI for so long as well. Just this in a different facet, for sure.

JULIE HYMAN: Yeah, exactly.