Both corporations have posted sturdy outcomes this yr, however CrowdStrike’s latest expertise failure might be a turning level.
Organizations world wide depend on cybersecurity to guard themselves from hackers. That reliance was made clear on July 19 when a software program replace from cybersecurity agency CrowdStrike (CRWD 0.79%) contained an error that induced widespread disruption for a lot of companies, together with airways, hospitals and banks.
This surprising occasion induced CrowdStrike’s inventory value to plummet 11% on the day of the outage, and the inventory has continued to fall since then, to beneath $270 on the time of writing, properly beneath its 52-week excessive of $398 hit on July 9. Is this drop a chance to purchase again shares?
Or would you be higher off shopping for shares in CrowdStrike rival Palo Alto Networks (PANW 2.09%), whose shares have risen within the wake of CrowdStrike’s software program replace fiasco. Let’s examine the 2 cybersecurity corporations to see which is the higher funding.
CrowdStrike Evaluation
While CrowdStrike’s July 19 outage is embarrassing for the corporate at this level, a extra necessary funding determination is how the corporate performs over the long run. Given its efficiency up to now this yr, traders with a long-term perspective might make the most of the present share value crash to purchase the inventory.
One motive is CrowdStrike’s sturdy income development, which got here in at $921 million within the first quarter ended April 30, up 33% from a yr in the past.
CrowdStrike’s income development is pushed partially by prospects adopting a number of of its cybersecurity options. The firm’s software program platform provides a wide range of add-ons past fundamental monitoring, equivalent to asking safety personnel to proactively search for cyberthreats. In the primary quarter, 65% of shoppers adopted 5 or extra of those add-ons, and offers with eight or extra add-ons grew 95% yr over yr.
In addition to spectacular income development, CrowdStrike can also be in sturdy monetary form: the corporate delivered report free money move (FCF) of $322 million within the first quarter, up 42% yr over yr.
The firm ended the primary quarter with a powerful stability sheet: complete belongings of $6.8 billion, with money and money equivalents alone accounting for $3.7 billion.
Total liabilities have been $4.3 billion, of which $3.1 billion was deferred income. Deferred income represents funds acquired from prospects that can in the end be acknowledged as income as CrowdStrike fulfills its contractual obligations.
Palo Alto Networks Case Study
CrowdStrike’s efficiency up to now has been sturdy, however so has rival Palo Alto Networks, which noticed income develop 15% yr over yr to $2 billion within the third quarter that ended April 30.
Additionally, third quarter FCF elevated to $492 million from $401 million a yr in the past. The firm ended the third quarter with a really sturdy stability sheet with complete belongings of $17.9 billion and money and money equivalents of $1.4 billion. Total liabilities have been $13.5 billion, of which $10.2 billion was deferred income.
As a part of its growth plans, the corporate launched a brand new technique this yr that encourages prospects to consolidate their multi-vendor cybersecurity spending onto Palo Alto Networks, and up to now, the technique seems to be working.
In the corporate’s third quarter, the variety of accounts spending greater than $1 million on the firm elevated 22% yr over yr, and the variety of accounts spending greater than $10 million elevated 28% yr over yr.
CEO Nikesh Arora famous that an organization dissatisfied with its current cybersecurity vendor selected Palo Alto Networks due to the corporate’s “built-in capabilities delivered by way of our six-part platform.”
Choosing CrowdStrike or Palo Alto Networks
Both CrowdStrike and Palo Alto Networks have had nice performances this yr, so one other issue to think about when deciding between these two shares to purchase is valuation, with the price-to-earnings ratio (P/E ratio) being a generally used metric for this.
Data by YCharts.
CrowdStrike’s P/E ratio is roughly 10 occasions that of Palo Alto Networks, even after the inventory value fell following the July 19 outage, suggesting that Palo Alto Networks inventory is extra precious.
Palo Alto Networks inventory, mixed with favorable fiscal 2024 earnings and valuation, makes it a sexy funding. Additionally, the long-term impression of CrowdStrike’s failed software program replace stays unclear at the moment.
As a results of the July 19 outage, some Wall Street analysts have downgraded CrowdStrike’s inventory, with Guggenheim’s John DiFucci, for instance, saying that “the worldwide disruption attributable to CrowdStrike will seemingly have a detrimental, even non permanent, impression on the corporate’s enterprise.”
DiFucci has some extent: Tesla CEO Elon Musk introduced that the corporate had stopped utilizing CrowdStrike after the software program points arose.
Taking all these components under consideration, Palo Alto Networks is at the moment the higher inventory to purchase within the cybersecurity large race.