Why BofA is Bullish on CrowdStrike

CrowdStrike Holdings Inc. (CRWD), a star of the 2019 tech IPO wave and one of the largest “pure play” cybersecurity public offerings by market capitalization on record, just got a vote of confidence from a prominent analyst. The bull, Bank of America Merrill Lynch analyst Tal Liani, expects the cloud-based software company, which jumped more than 70% on its first day of trading, to see its total addressable market triple to over $20 billion in the coming years. 

In a recent note, Liani initiated coverage on shares of the enterprise software company at a buy rating. The company, which offers cloud-based security technology, hit the public market in June. 

CrowdStrike is led by co-founder and CEO George Kurtz, who compares the firm to other companies in different software sectors like Salesforce.com Inc. (CRM) and Workday Inc. (WDAY). He notes that companies at the top are benefiting from a rapid transition from on-premise data centers to the cloud, per the Wall Street Journal. 

Unlike disappointing consumer-focused tech IPOs this year like Uber Technologies Inc. (UBER) and Lyft Inc. (LYFT), enterprise software IPOs have shined. Shares of CrowdStrike remain up over 100% from their initial IPO price of $34 as of Wednesday morning.

While Liani's $75 price target confirm's the stock will hold its stratospheric gains, it also implies only a 6.5% upside over 12 months. If CrowdStrike's addressable market triples longterm from $7 billion today as forecast, it suggests that the stocks has major growth potential beyond the next year.

Market Leadership

Liani says his optimistic outlook longterm is due to CrowdStrike’s “dominant force” in the high-growth endpoint security market. The $14 billion company is in a “unique position” to disrupt the endpoint security market, just one part of its cloud offerings, per Liani and his team of analysts. Alongside endpoint security, CrowdStrike offers services like threat intelligence and cyber attack response services.

“We believe the total addressable market for CrowdStrike's platform could grow from the $7bn core endpoint market to $20bn+ when we add the markets addressed by its 10 different services,” wrote Liani. He expects the company to “outgrow” the endpoint market and “gain share in newer market areas like Vulnerability Management, Managed Security, IT Hygiene, and broader endpoint coverage (i.e., Mobile) over time.”

Cybersecurity Industry Shift

BofA also highlighted the shift to cloud-based architecture in the cybersecurity space, where CrowdStrike is a leader. The analyst cited an industry effort to transition from “legacy antivirus to more robust behavioral-based, next gen platforms.” Liani writes that CrowdStrike shines thanks to its “superior machine learning, threat intelligence, lightweight agent, and a 100% cloud-based architecture.” 

Given its next-gen approach, Liani expects CrowdStrike to continue to gain ground against rivals such as Symantec Corp. (SYMC), Trend Micro Inc., Sophos Group plc, and others. 

Exploring Valuation, What's Next?

To be sure, the BofA analyst warns that the “top negative” for CrowdStrike’s stock today is its valuation. Its shares currently trade dramatically higher than its cybersecurity peers. But Liani points out that CrowdStrike is growing far faster than the industry, with revenue growth at 110%. In their bull model, BofA says sales could grow over 5-fold between 2019 and 2022.