 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. George Kurtz has pumped up and why not? CrowdStrike's business appears to be on track and entering a new phase of growth despite the difficult macro and elongated sales cycles. The company's products are considered best in class. Its business is growing steadily and an improved profitability and cash flow outlook have investors excited, albeit still cautious, given the environment and a quite rich 13X revenue multiple. Gen AI could be the next catalyst for the company in a race to close the sec ops staffing gap with a natural language based machine assistant known as Charlotte AI. Hello and welcome to this week's Wikibon Cube Insights powered by ETR. In this Breaking Analysis, we update our scenario on security leader CrowdStrike. We'll review the company's recent progress, share survey data that shows where it is strong and where there may be some icebergs ahead and we'll preview FALCON 2023, which takes place next week in Las Vegas. This year has seen ups and downs for CrowdStrike and the cyber industry in general. Here's a year to date chart as some of the cyber related data points showing the performance of Palo Alto Networks CrowdStrike Zscaler, the NASDAQ and the Bug Cybersecurity ETF. As you can see, the sector is not immune to tech headwinds. Take a look at May when everything sort of dropped. And now you look at the Bug ETF that's performing below the NASDAQ, but it's a tale of two cities. There are definitely some bright spots with the likes of Palo Alto CrowdStrike and Zscaler which are outperforming the NASDAQ this year by a decent margin. Those three are playing the consolidation game quite effectively while many others are donating share. Now, generally these platforms, these are platform plays of which CrowdStrike is one of the more prominent and these plays are winning and the leaders are expanding their total available markets with new modules and participating at the periphery of adjacencies in CrowdStrike's situation such as observability. Now, as we hear at every conference this year, GenAI will be a hot topic at Falcon with the company expected to announce pricing for its Charlotte AI Intelligent Sock Assistant. One of the first examples of AI, GenAI specifically, monetization at Black Hat last August, this past August, CrowdStrike showed a demo of Charlotte, one of the few, if not one of the only large companies, but one of the few that were actually demonstrating GenAI for security. So we're eager to see that at the upcoming conference. Let's talk about the recent performance of CrowdStrike specifically. I consulted with SiliconANGLE's lead cybersecurity journalist, David Strom, who's been in this business for quite some time to get his take on CrowdStrike. He's a real skeptic, but he as well is positive on the company, especially as the Falcon platform, Falcon is what CrowdStrike calls its cybersecurity platform has succeeded at both integrating many dozens of modules and understanding how these modules map to a customer's skill sets. And moreover, how the data collected by Falcon's lightweight agent is shared across these teams, collect once, use many, as George Kurtz likes to say. CrowdStrike was early into cloud-based security, perhaps a bit late on protecting containers, but it's catching up fast with a dynamic analysis tool for containers. CrowdStrike combines both an agent and agent-less approach and is generally considered leading edge. Take for example, a hot emerging security company, WIZ, which CEO George Kurtz called out on the last earnings call. It's generally viewed as having WIZ that is a better dashboard and user experience, but it's agent-less architecture that doesn't have the data richness of CrowdStrike. This is just one example of the many trade-offs that users face in evaluating the complex mosaic of cybersecurity platforms, but generally CrowdStrike has seen as being capable of handling many, many different security situations. Here's a snapshot of CrowdStrike's financial performance. Its ARR is up $790 million since last year at this time. That's a 37% year-on-year growth. Note the note in the subscription customers with five plus modules, growth there, 63% versus 59% last year. Big jump in free cash flow margin up from single digits a year ago, and then rule of 63, i.e., free cash flow margin plus revenue growth is quite impressive. And then year-on-year subscription revenue growth, 36% not shown versus 60% last year. The street, given the stellar performance and relatively easy compare, wanted more aggressive guidance, but for reasons that we'll cite in a moment, we think caution is prudent. Now at a recent Goldman Sachs conference, or maybe it was the earnings call, I can't really remember, George Kurtz invoked Angie Jassy's famous line, there is no compression algorithm for experience, and here's the CrowdStrike version of that statement in the strong case for AI based security from the beginning. Now you may say it's easy to create a slide like this after the AI shot heard around the world last November from open AI and chat GPT, but CrowdStrike has been deep in AI for a decade plus. And the call out on the upper right of Charlotte AI is new and we believe we are entering a new era where technology is going to begin to attack the number one problem faced by SecOps teams and that's the lack of deep talent. Estimates indicate there are 3,000 unfilled security jobs today and the vision is AI can begin to close that gap quite effectively. All right, let's get into some of the ETR data. Alex, if you bring up the next slide, what we want to look at here is CrowdStrike's spending performance and the breakdown of ETR's net score methodology. It's a proprietary methodology. Here we're showing of the 422 CrowdStrike customers in the survey of 1700 plus. We show, let's focus on the July bar, July 2023. The October survey is in the field so we have to block it out. We have early results. We'll talk about that in a moment. The lime green is new customers and you can see it's been decelerating pretty steadily but not dramatically but pretty steadily over the last several quarters. That's at 12%. The forest green is spending is increasing by 6% or more. That's a healthy 41% but down from earlier highs. You can see the big uptick in flat spending that causes the compression in net score which is that blue line at 48%. And now explain the math in a moment. And then the pink is spending down 6% or worse and the red is defections or churn. You subtract the reds from the greens and you get net score which again is that blue line which is on a slight downward trajectory falling in at 48%. But notice that red dotted line at 40%. That indicates a highly elevated spending momentum and CrowdStrike is well above that. The yellow line is presence or pervasiveness inside the data set and it's basically calculated by taking that N of 422, dividing it by the total N in the survey and tracking that in a time series. And you can see CrowdStrike relatively speaking to other companies in the data set is in other sectors has been growing quite nicely. The caution is I took a glimpse at the survey that's in the field now there definitely is some caution around SMB momentum. It appears to be decelerating and momentum overall appears to be decelerating as well which is cause for concern. Okay, however what I want to do now is take a look at the all important Global 2000 and I want to come back and talk about SMB and particularly a deal that CrowdStrike has struck with Dell which obviously has a very strong SMB performance but Alex bring up the next chart, thank you. This is CrowdStrike's spending performance in the Global 2000. Now the N in the ETR data set for CrowdStrike is 109. Look what happens. Actually Alex go back to the previous slide we can see that 48% of net score, if you don't mind going back one, yeah you see 48% on the previous slide. Now Alex go forward one and look at the big jump when you go into the Global 2000 that jumps up to 61%. Now again the N is smaller cause there are fewer Global 2000 customers but a very steady increase in the Global 2000 performance. So that's quite notable and you can see the even steeper rise in the shape of the yellow curve. Again that's essentially the presence or pervasion inside the data set. Now what we like to do as you know in breaking analysis is use the ETR data to compare companies in particular sectors to peers. Now we're going to show you a few kind of interesting cuts. So Alex bring up the next slide. This is CrowdStrike's peer performance in within the Global 2000. So we're talking about an N of 430 Global 2000. That's pretty good for the ETR captures 430 approximately, 430 out of the 2000 that are out there worldwide and 109 CrowdStrike instances and this is the information security sector. On the vertical axis is net score or spending momentum which we explained earlier. On the horizontal axis is that N in the data set and the overlap with all these companies. N by net score determines the plot of the dot. Now a couple of things to note here. First of all that squiggly line is CrowdStrike's performance over the last several quarters and notice it's net score on the vertical axis is held pretty steady. But as we saw in that steep yellow line in the previous chart that pretty steep uptick it's gaining share and its consolidation play is working. So George Kurtz says others are donating share but it's clearly working for CrowdStrike. You'd likely see something similar for Palo Alto networks and Zscaler. You know we'll talk about those in more detail and other breaking analysis. The other call out here is George Kurtz on the earnings call specifically called up Microsoft because Microsoft's a big competitor of CrowdStrike. They're not even frenemies, they're kind of enemies for the most part but there's a lot of overlap in the customer base which I'll talk about. He also called out Wiz. I mentioned Wiz earlier with the David Strom commentary and we've highlighted them. Wiz is a very hot company at RSA. They were talking the town. People were practitioners were lining up to get into the Wiz party. We were there if we were there across the street from the inside capital party. So there's a lot of action there that we could observe and he also called out Sentinel-1, a company that is rumored to be going private and Kurtz kind of threw some fun into the mix about how, hey customers have seen this movie before and they're obviously cautious about companies going private or getting acquired. We heard that a couple of years ago with some practitioners around carbon black when VMware made that acquisition. We're hearing it again with the Broadcom acquisition of VMware so practitioners they don't like uncertainty. They've got enough uncertainty, especially SecOps pros. But anyway, you can see here that red dotted line is the 40% line and a number of companies are over that line. And again, remember this is the global 2000 but CrowdStrike really stands out because it's above that 40% line and it's quite prominent in terms of its market presence in the global 2000 as is E-scaler, as is Akta which has not performed as well from a stock market standpoint given its difficulty integrating Auth0 but nonetheless you can see it there and you can see the others very, very crowded market obviously and of course Microsoft, you've got to be impressed with Microsoft in that it's got a huge presence in so many different markets. But generally speaking, it participates as a competitor in endpoint security with CrowdStrike but it's not a horizontal platform. It doesn't, George again makes the point Microsoft doesn't wake up every day thinking about security only a portion of Microsoft does that. That said, Microsoft has a very large security business that claims many tens of billions of dollars or it could be the largest security firm in the planet depending on how you count that. All right, now what I want to do is take a look at the overlap on the next slide of 422 CrowdStrike accounts and what we're showing here is the same vertical axis that NetScore and the presence in the data set on the horizontal axis and because Microsoft is such a big competitor to CrowdStrike and because George Kurtz again commented on if it was in the earnings call or one of the other conferences that there was a big overlap between CrowdStrike customers and Microsoft customers and CrowdStrike accounts what we're showing here is CrowdStrike accounts 422 counts and the overlap with some of its competitors and some of its partners. So notice Microsoft 79% according in the ETR data set 79% of those 422 CrowdStrike accounts are running Microsoft not surprising that Microsoft has such a huge presence inside of CrowdStrike accounts but it's meaningful and significant. C-scaler Octa are partners, they're partnering with Palo Alto, sorry with CrowdStrike, they are sponsors of the Falcon Conference, Palo Alto Networks is a little bit broader, they've done acquisitions in a lot of areas, they're a larger company and they've got a bigger presence, they don't have the spending velocity but as you saw in the earlier chart their stock is doing very, very well this year. And then you can see Wiz, Tainium, Sentinel-1, some of the companies that, a couple of the companies that George Kurtz calls out on the earnings call, Tainium is an endpoint player. Now notice the insert within the ETR data set, the CrowdStrike overlap in Microsoft accounts so in other words, I'm not showing it here but if you flipped it, in other words if you ran a crosstab on, I don't know, over a thousand Microsoft accounts in the ETR data set, 25% would also have CrowdStrike. Now, you might say wow, that's a lot lower than the overlap of the reverse 79% Microsoft overlap but 25% is pretty significant, 25% of Microsoft accounts also have CrowdStrike. So that kind of solidifies or aligns with what George Kurtz was saying. Now the second bullet here, CrowdStrike, the CrowdStrike overlap in Dell accounts is 28% and the Dell overlap in CrowdStrike accounts is around 38%. So in other words, in these 422 accounts, Dell, there are 38% of them have Dell and then you flip that CrowdStrike within Dell accounts is 28%. Why do we call that out? The reason we call that out is because there's some softness and I didn't call this out in the earlier slide. I actually did call it out, sorry, about the softness in the SMB market. Now a couple of quarters ago, CrowdStrike specifically said that its SMB business was soft and that was a reason why it's earnings, it was an earnings miss but it was basically a miss or it was perceived as a miss. Or not a beat, which people expect. Anyway, it was that SMB softness. They subsequently, and I think it might have been a Dell tech world, announced a deal between Dell and CrowdStrike where Dell will be selling CrowdStrike solutions. Dell obviously has been talking up cyber security as of late. And so this is interesting to us because it's a real opportunity for CrowdStrike and Dell to shore up that SMB business especially in the context of the softness that we perceive in the current quarter coming up. We'll see, again, the surveys in the field but the initial indications are there is some softness. And so that's something that we'll be watching. Dell will be at, they are a diamond sponsor, I think it is diamond or platinum. I think diamonds above platinum. What's more valuable? Diamonds are platinum, I guess diamonds. Maybe not, platinum is more scarce. But anyway, Dell is one of the top sponsors. So let's end, I'll clarify it here, talking about the Falcon preview if we could bring up the next slide here. It's a two-day event at Ceasar's Palace. The cube is going to be there. So if you're going to be there, stop by. I got to update this slide Falcon 2022. We were there last year as well. I'll update it with the 2023 logo. My apologies, been a crazy day. A lot of red eyes this week. Second key point here, we're going to have keynotes from George Kurtz, Intel, the CISO of Intel, the CISO of Mattel, or maybe you say CISO. Security practitioners say CISO, I say CISO. Anyway, two top security pros from Intel and Mattel. We're going to have practitioners from Liberty Mutual and Salesforce and Action Pack. They're going to have a much bigger Falcon this year. Obviously, what we just talked about, big focus on Charlotte AI and pricing. I'm really interested to see how CrowdStrike prices Charlotte because they have to be careful, right? I mean, I think they could do value-based pricing in trying to make a case of, hey, look how much time we're saving you, look how much money we're saving you in terms of staffing. But again, it can't be so expensive that it's prohibitive to people adopting. So they're going to have to balance this, and I'm sure they will with their margin model. And I think they could have some pretty attractive pricing here and it'll be integrated into the Falcon platform that is, I think, going to be very intriguing for customers. The fourth bullet here, expanding the Falcon platform or the Falcon platform. We're going to hear a lot, I think, about cloud security in the cloud. In other words, Falcon in the cloud itself. CrowdStrike was early there, as we said. They also protect identity, as sort of treated as an endpoint, and then log scale, going after all that sort of munch of logs is another growing business for them. One of the things George Kurtz said, which was quite interesting, was each of these businesses is IPO-able in and of itself. And so put that together and you've got a pretty hot company right now. The other thing is last year at Falcon 2022, we said one of the things we want to see from CrowdStrike is ecosystem expansion. And we're starting to see that. AWS, they were there last year, but other partners. We talked about Dell, Intel, Cloudflare, Mandiant, Zscaler, 70, even 70 plus partners at the event is a nice expansion and we expect a significant momentum from that ecosystem. If you're going to be a platform play, you got to have ecosystems, there's a hallmark of a cloud company. Is ecosystem energy and flywheel? So we'll be looking for that. The event is at Caesar's and we were discussing in theCUBE pod earlier today because we were at the SAS conference last week, which was at MGM at the Aria across the street from the MGM. It's an MGM property. The MGM got hacked and so did Caesar's. Where did Caesar's paid the ransom? But we still don't have hotel rooms. We can't confirm our hotel. And we're staying at the Bellagio. We can't figure out, in fact, if we have a reservation. So really interesting and scary and timely with these hacks. So I'm sure that will be a topic of conversation at Falcon. It certainly was to a lesser extent last week at the SAS conference, but that's something that we'll be paying attention to, trying to unpack the anatomy of that hack. Sure, it was some kind of fishing thing. It seems to always be that way. But anyway, if you're at the conference next week, this coming week, stop by, we're at theCUBE. Two days of coverage, myself and Lisa Martin. John Furrier will be at Mandiant, a simultaneous event, another security event in DC. Whole CUBE team will be there. So definitely stop by and see him and theCUBE team if you're at Mandiant in DC. Okay, we're going to leave it there for now. Thank you very much to Alex Meyerson. He's on production and manages the podcast. Ken Schiffman as well. Kristen Martin and Cheryl Knight help get the word out on social media and in our newsletters. And Rob Hofe is our editor-in-chief over at SiliconAngle.com. Thank you for all the great editing that you do. Remember, all these episodes are available as podcasts wherever you listen. Just search, Breaking Analysis Podcast. I publish each week on wikibon.com and siliconangle.com or you can email me at david.volante at siliconangle.com. I get tons of impounds, don't be offended if I don't respond. If you have something interesting and I catch it, I'll respond, if not, you know, keep trying. You can DM me as well at dvolante on Twitter or X now or comment on my LinkedIn posts. And please do check out etr.ai. Awesome survey data. They're expanding their survey data. They just launched another emerging technology survey to complement their technology spending intention survey. Incredible company and work that they're doing based in New York. Best data in the enterprise tech business, in my opinion. Okay, this is Dave Vellante with theCUBE Insights Powered by ETR. Thanks for watching everybody. We'll see you next time on Breaking Analysis.