Episode 9: $CRWD: Flipping the Bird (Crowdstrike)

In Episode 9 (recorded September 12, 2024), the Stock Jocks give their bull/bear treatment to security powerhouse Crowdstrike ($CRWD), purveyor of the Falcon platform (hence the episode title, “Flipping the Bird”. So clever and on-brand!) We begin with a heartfelt apology from Gordon on behalf of the team for the month-long delay in the editing room; technical issues nearly killed this gem of an episode but we managed to salvage it through many hours of tedious effort. Gordon hosts, Bruce puts on his bull horns, and George puts on his “other” bear suit (not the one he gets defensive about when asked.) Was the “Blue Screen of Death” debacle a buying opportunity, or likely to result in further blues for investors? Listen and find out!

Transcript

0:01

Your friendly neighborhood podcast or Gordon just want to call something out to our very loyal. And a large fan base out there. Um, when, uh, I'm really apologize on behalf of the team. Uh, we had some technical issues and it took us a whole month to get this thing out there. So, um, The subject CrowdStrike except about 11%. But as we were discussing offline, If you're gonna for a, for 11%, then, you know, that's, that's just not a very interesting investment. So, um, Anyway CrowdStrike. Um, so a lot of good content in this episode, some of the references in the new section in particular, a bit dated, but I'm still proud of this episode and hope that you enjoy it and we'll do better next time. Happy treating.

Gordon: 0:47

Another episode of your favorite financial entertainment podcast. Um, I am, uh, Gordon and will be the host of this week's festivities with me. As always are my compatriots, uh, Brucey boy and Georgie say hello guys.

george_1_09-12-2024_172330: 1:08

In the house.

Gordon: 1:17

of some very, uh, Biden esque energy we have coming to Thanks for uh, for mailing

george_1_09-12-2024_172330: 1:23

I, I would be asleep if I was, uh, Biden esque.

Gordon: 1:26

Yeah, that's right. We might be in a bathroom on the lawn. So, uh, so, um, Really quick before we dive in, um, you know, just for those who, maybe knew the podcast, you know, we are, uh, you know, three great guys who, uh, are industry, uh, veterans who, who do a bull and bear take on a stock every week, tend to focus on, on tech. keep our true identity secret to protect The innocent so I like to think of myself as kind of bruce wayne of financial stock podcast. I know what you guys are um Um, but uh, hey, hopefully it will still be useful in your process Um, you know, either as a contrarian

george_1_09-12-2024_172330: 2:04

there? Talk some shit?

Gordon: 2:07

So, uh,

bruce_1_09-12-2024_202329: 2:08

do the,

Gordon: 2:08

I, if you recall, I was pretty, uh, Yeah. Yeah.

george_1_09-12-2024_172330: 2:12

I did it last! Mine's the worst!

Gordon: 2:16

all right, but just don't do like a techno one then Bruce, because this is not

bruce_1_09-12-2024_202329: 2:21

Alright, this is the news flash. Toot toot toot toot toot toot toot toot toot toot toot toot toot toot toot toot.

george_1_09-12-2024_172330: 2:32

one too many raves.

Gordon: 2:38

Okay. With that, let's start with our favorite topics of micro again. Um, the, you know, the hits keep coming from these guys. It's like literally, you know, this company was like 2 billion and Mark gabber less in. Early 21 they touched the sky. You get to like 60 billion ish. If I recall old Charles had like 7 billion. I'm sure where the absolute peak was, but last I looked, this thing was down back to like 20, you know, 5 billion. They had that short report to not very nice things. The folks at Hindenburg, you know, um, had some not super nice things to say. They talked to a bunch of former employees who also did not have a lot of nice things to say about the culture of, of sloppiness, sloppy toppy, as it was the phrase we used on our last, uh, deep dive on super micro, And so, um, and this is pretty bad. Like the, the way this whole, their whole debacle began in 2019, where they went and got delisted and watch them into market cap, you know, uh, the first time was they delayed their

george_1_09-12-2024_172330: 3:32

And what is the K

Gordon: 3:33

it turned

george_1_09-12-2024_172330: 3:33

of those who may not be familiar with, uh, that lingo? Yeah,

Gordon: 3:36

drug, um, you know, it's a party drug, special

george_1_09-12-2024_172330: 3:40

mean, I think Hindeburg

Gordon: 3:43

it to him. Um, different dealer. So yeah, 10K is an annual report. Um, so, uh, yeah, they have in June fiscal year. And so they, uh, you know, said after like pretty quickly off that report within a few days, like, you know, I mean, it's not gotten nailed. Um, and then, you know, in like several days later, You know, they had to delay the K like to me, it looked kind of like perhaps the auditors saw the Henry report and said, Oh, wait a second. Everyone's watching. Maybe we should go look at this again. And once again, like, you know, big moral hazard for the auditor, like, essentially, they're the ones who are doing a good job with the financials, which in their blessing it and giving an opinion saying that it's all in the And suddenly they're like, Hey, there's some problems. And like the last time they did this auditors made like 100 Over the course of two years. So like they sure as hell want to find something. So what's just really amazing to me is that these guys potentially could have another delay, you know, another delisting. What's way different this time is their business is so much stronger than doing 30 billion in revenue and they're not, you know, they're not declining. So like they're growing like 60 plus percent and you know, they're kind of like. Poor, uh, is kind of like, you know, trapped in the pickup truck with Charles Lee Yang and can't get out until he found, you know, somebody else pulls up from Dell, you know, in their Porsche, right? With the new liquid cooling, because right now he got no other options. So, like, I don't know how this plays out, but, like, if I'm a betting man, just based on history, like, was incredibly resource well sourced and said, you know, Hey, basically same shit that happened prior to the listing last time is happening again. And oh, by the way, the diverting product to countries like. China through intermediaries and, you know, and it's just incredibly, you know, it sounds there's a lot of very risky behavior. I mean, candidly from what we've seen, like rarely does it end up badly. Last time Charles had to write a check for a million bucks and admit no fault. So I kind of blame him for being sloppy again. So I just don't know though, you know, investors, I may be more forgiving now, you know, what will not be forgiving is if they actually get caught. You know, shipping into China like this is now like equivalent of nuclear, you know, weapons, you know, national security. So I'll stop there. I'd love to say since it was a passion project for me and on our episode one, but I'd love to hear you guys's thoughts.

george_1_09-12-2024_172330: 5:59

is, uh, You know, has a pretty good track record, Right. So that's one thing to point out, you know, when they've come out with their short reports, like the other, I don't, I'm trying to remember off the top of my head who else they've, they've, uh, profiled.

Gordon: 6:11

I didn't want to have an angel or something. That was a big one. There's Citroen too, right? So there's a handful of these firms that the Hindenburg is also being investigated Right. now for pump and dump. Um, not to be confused with my glory hole activities. Um, sorry. Um, had to get the glory tool. Remember the glory people are paying us per engine. So we got to get that, you

george_1_09-12-2024_172330: 6:34

I'm sorry.

bruce_1_09-12-2024_202329: 6:36

you think it, do you think it impacts their like fundamental business case though? Like it still feels like the tailwinds around AI are really strong, like

george_1_09-12-2024_172330: 6:45

Exactly.

bruce_1_09-12-2024_202329: 6:45

read the Hindenburg report but like, I mean did they say anything about like the Fundamental business model being softer.

Gordon: 6:55

of these customers are showing, you know, they're getting product that's like 20%. You know, just not functional out of the box. By the way, that reminds me, I worked at Best Buy when I was 16 years old. And like that would happen with Packard Bell PCs. What happens with servers? Not as cool, not as forgivable. Um, and they're just doing this stuff. And so like basically, yeah, short term, these guys had a bunch of liquid cooling stuff available early on that nobody else did, and it's going to take other, you know, but there were like 15 vendors in the NVIDIA booth at Computex demonstrating liquid cooling. Dell is out there. You know that we talked about before I think just bidding like crazy and Jensen saying how great Dell is like Everyone wants off the super micro bus. It's the crazy girlfriend, right? It's crazy young girlfriend and you're really lonely. You got nobody else, you know But the instant the high school sweeter comes back dell, you know They are kicking this crazy chick out of the truck and losing their phone number like so yeah, I just don't I feel like they probably got another year in crazy town, but with super micro, but like You know, um, also what happens if China, like the, I think the government could step in here and be a real spoilsport, whether you like the company and are happy with the product you get or not. Like you can't trust super micro to not, to not ship to our global geopolitical adversaries, one of the most sensitive analogies in the history of mankind. Like, you know, Like, that seems kind of.

bruce_1_09-12-2024_202329: 8:17

Yeah, I guess. But the reality is like, even for Nvidia chips, those are finding their way into China as well. Like there's a bunch of intermediaries that are buying chips, servers, InfiniBand, like, it's not like China's not getting anything that we don't want to sell it. you know, what I mean? like

Gordon: 8:34

the only way they can get that through though, is through people, basically the server OEMs, right? Like, you know, it's the server OEMs and the VARs that resell them. Like there's a handful of hands, you know, where they can lie, but like, I don't know if it becomes obvious, these guys are being flagrantly negligent. They could get specialty remit, right? Like you can just see the HP and Dell are on the same footing as super micro in terms of trust, right? These are white, you know, shoe suspender companies, HP and Dell are super, like poster children for compliance. Charles is the Donald Trump of servers. You know, like this guy is, you don't know what he's, you know, he's effective in some way, right. but he's aggressive as hell. And, but I just think that's just, it's not going to play out well for them. Um, are you a buyer here? It sounds like Bruce, you guys are both buying this thing. Is

bruce_1_09-12-2024_202329: 9:20

no, I mean, I'm, I'm on the sidelines. like I haven't read the reports and I don't know, enough to be dangerous, but I probably know enough to lose all my money. So. Um, I'm on here, but I just wonder if it, I mean, there's definitely going to be either like a, a buying opportunity or selling opportunity. Doesn't feel like the stock's going to just stabilize here. So I don't know, maybe you should buy like a straddle and try to work both sides of the trade.

Gordon: 9:47

Yeah.

george_1_09-12-2024_172330: 9:48

And a straddle for those who's not familiar, right? You profit when it's, when there's a lot of volatility. So you don't know if it's up or down, but if it moves, you'll make money essentially. And I agree. I mean, I think it's

Gordon: 9:58

And they also sell them.

george_1_09-12-2024_172330: 9:59

the thing to be honest with you. Long term.

Gordon: 10:02

That's what she said. I was gonna say, by the way, you can also buy a straddle at Tootsie's

george_1_09-12-2024_172330: 10:08

it gets tough, but anyways, uh, Oh, um,

Gordon: 10:16

Well, I like the use of the straddle. Yew, I love it.

bruce_1_09-12-2024_202329: 10:19

And speaking of straddles, how about that company Oracle?

Gordon: 10:25

yeah, it's straddle Larry.

george_1_09-12-2024_172330: 10:27

for teaming me

Gordon: 10:28

you wouldn't do that in your big screen.

george_1_09-12-2024_172330: 10:30

So I'll, I'll take my victory lap here. Oracle reported, uh, this week, uh, another blowout quarter on the back of OCI. So their OCI, which is, uh, their cloud grew 45%, well above the 20, 30 percent we're seeing from other clouds, albeit they have a much lower base. So they're starting at 2. 2 billion of revenue versus a lot of the other ones. Um, The other thing that probably got people excited is they announced another partnership. So they've been partnering up with the big public clouds. Uh, so AWS was the one they announced this time, allowing folks to kind of tap into their traditional databases. They may have an Oracle through the public cloud, uh, and through these other providers. And so that opens a big new market, uh, for them and their services. Um, but overall very positive stock since we first talked about is up over 40%. Uh, so that's been a nice winner. Ellison had some really interesting tidbits as he talked about AI and he was really, you know, pumping it up. And I think as we were talking before we hit record here, I mean, Ellison's probably not the most, uh, humble of individuals.

Gordon: 11:40

Mildly promotional. I used to struggle with it. So first of all, they weren't allowing fetuses from Amazon before? They're just now doing that. I mean, Amos has always been the devil, right? They're the, you know, the incumbent that they're trying to

george_1_09-12-2024_172330: 11:55

Well, they've got a competing product, right? Like Amazon has S3 databases, right? And so in some ways, you know, they're, they're competitive, um, but people have a lot of data stuck in Oracle's And so, you know, as you're thinking about AI and you want to train on your information, um, You know, AWS is opening up to saying, Hey, we'll we'll allow access, you know, in your AWS instance to your traditional databases that you may have over at Oracle. Um, you know, and vice versa, Oracle's open to it, you know, if it drives more, more business for them. So I think historically they've seen each other as competitors. Why you didn't see this happen before, but the business case makes sense for both of them now to, to open the doors and allow each other to kind of operate in that way.

Gordon: 12:40

Yeah, It's just interesting that I was reading too that, and we kind of used this argument before that I'm very skeptical of, that basically they were like, oh, yeah, since they were kind of late to the party, that they benefited from the fact that they have a lot of new data centers, and so, like, There's been such a massive and sudden architectural shift. They were kind of under the hoop a little bit. And I kind of buy that to some degree, because the last 18 months has been, has been just so crazy pants, you know? Like, there's been such a change. I mean, I just feel like Oracle's kind of like Cisco, sorry. You need any loans that may be listing or, you know, um, or Dell or applied material. It's big, lumbering tech. We're like, basically nothing innovative ever fucking comes out of them. IBM is sort of classic to just like the slow motion

george_1_09-12-2024_172330: 13:22

It's of the same era of all those companies for sure.

Gordon: 13:26

yeah. And so it's just like, do you really fucking believe, but the thing is the public cloud is not really about innovation. Now, right. It's, it's compute by the pound, right? It's all to a certain extent, it's commoditized. But you also need to really trust that vendor. I know that, that again, rocks all infrastructure. And, you know, so it's, I don't know, there's anything really special about what they're doing from a design perspective or what I kind of feel like this had a lot of enterprise relationships. Again, they have captive ERP customers. And so they're, and they were so late that they were able to kind of, you know, invest heavily at a good time. But like

george_1_09-12-2024_172330: 13:59

Yeah, I think there's a couple. Things going on. I said, Gordo, you wanted to jump in, but I mean, I think also, you know, they are being aggressive on pricing as well. Like there are good margins in the cloud. So I know for example, uh, a company that I've been employed by has looked at making the move over to Oracle to save costs. And so there was a, a cost difference there that they were willing to, to offer versus, you know, being on AWS, uh, as an example, so it was a real consideration thought about, looked at. You know, the functionality was there that we needed. Um, but it is, it is a big lift, so we didn't do it. But end of the day, if you're a startup, you know, or you want to do AI workloads, like there's an argument that maybe you give Oracle consideration you wouldn't have historically.

bruce_1_09-12-2024_202329: 14:44

But I think the only reason that people are using OCI is, like one, I, I think like the infrastructure that the hyperscale web companies have built is important. Like people use Amazon because they do have the best technology offering on top of it. They have a bunch of features. They have a bunch of open source technologies. It's the easiest to use out of the box. They had a big first mover advantage. I think though, like, For better or worse, AI sort of levels the playing field. Like most of the developers are just probably using OCI because they get access to compute in a way that they can't on Amazon or Microsoft, or potentially because it's cheaper because of both. Like, I think like the maturity of the Amazon cloud is really the differentiator in a lot of ways. And the installed base of the Azure cloud is what's obviously differentiated them. And OCI is just like coming in at the last second and probably A. I. Compute in a way that others can't or won't. And so They probably feel, uh, view this as a opportunity to steal market share, but it's just like they're offering raw compute as opposed to any of the other services that I would say the other clouds are offering and probably more developed.

george_1_09-12-2024_172330: 15:52

Yeah. And they're claiming, I mean, the data centers are talking about building now are going to be the largest, you know, in terms of numbers of GPUs out there. So, I mean, they're talking about massive. Massive size and scale.

bruce_1_09-12-2024_202329: 16:02

Well, that's the, and that's the thing, like for large language models, it really just comes down to scale like the size of the compute. You just need orders of magnitude, more compute. You need orders of magnitude, more GPUs all co located in the same facility. And that's how you get to a scaled model. I'm like, There's only a few places that you can do that. You need people with tens of billions of dollars. You need like infrastructure to support it. So they're one of the only games in town. And like, I think they're being smart. Like Larry Ellison, obviously he's not, not an idiot. And he realizes this is maybe his last shot at stealing some of the cloud

george_1_09-12-2024_172330: 16:34

Oh yeah. And I will say compared to some of those other dinosaurs, like Larry Ellison, I think is, you know, you were mentioning in front Gordo, like Larry Ellison is still, he's the CEO founder, he's technical. He's still involved in this company. Like most of those other founders have moved on. Like, I do think he's a smart guy. He can actually drive, like there's something that a founder can drive that a professional CEO coming in after can't. And so they can take big risks and take their shots. Like they do large acquisitions, no, oNe's pushing back on Larry. Saffra cats and the board gets out of the way and he's doing what he wants.

Gordon: 17:04

That's where Micro is. That's a founder of a company. Founder mode. is a thing, right? You know?

bruce_1_09-12-2024_202329: 17:09

Larry Ellison is the ultimate founder mode, and also, he's used more Botox than your third wife, Gordo. Shoutout to Jensen.

george_1_09-12-2024_172330: 17:20

his

Gordon: 17:21

me eating food. I think I

george_1_09-12-2024_172330: 17:22

old girlfriend. Uh,

Gordon: 17:25

I eat it in a bowl. They're like, it's so, it's like an egg. It's like a, like so smooth.

george_1_09-12-2024_172330: 17:30

eventually it'll all fall down. Uh,

Gordon: 17:34

Yeah, they're nice and smooth.

george_1_09-12-2024_172330: 17:37

so let, let me maybe close that, that. That section out by just like his quotes on AI, just to kind of pump up, give our annual or our, uh, our per episode pump of AI. He said, uh, there are a few large technology companies and possibly even one country that will battle out for AI model, technical supremacy, uh, in the next several years, spending a hundred billion each. And he said, there's no signs of AI booming, boom, waning anytime soon. So if your horizon over the next five years, maybe even next 10 years, I wouldn't worry about it This business is growing larger and larger. There is no slowdown or shift coming. So for everybody that's worried about Nvidia and AI and all the kind of volatility that's been in the market, you know. The CEOs have been pretty consistent. No one is sending a different signal, right? It is all, you know, full steam ahead. So,

Gordon: 18:30

Well, if Larry. says that, then it must be okay. He's got no interest in getting people

george_1_09-12-2024_172330: 18:34

oh, they all do, but end of the day, usually you have someone

Gordon: 18:38

Larry Elkin.

george_1_09-12-2024_172330: 18:39

who's maybe on the sideline And they'll point to the weakness. Like I'm not hearing a lot of it, to be honest with you.

Gordon: 18:43

I'm not sure what the actual catalyst was, but I feel like everyone kind of woke up and said, Hey, wait a second, we're not sure what they're going to return all these crazy models that people were building. These, I mean, I feel like it's nothing's really changed. And suddenly people were just like, you know, Mr. Market just woke up, we've had some debate on the show. There's definitely some companies that are making money off AI and they're going to go public at some point. There's definitely evidence behind the scenes of validation, but there's also a lot of specular spin. So why, why are

george_1_09-12-2024_172330: 19:06

What was the catalyst?

Gordon: 19:07

know, negative now? I, I feel like there was no particular, maybe I missed it. What was it? Everyone woke up one day and just said, you know what, I'm just not sure about these LLM model. You know, they really going to get a return anytime soon. and now Goldman's, you know, out there

bruce_1_09-12-2024_202329: 19:25

I think, I think it's just like, people are taking it like a breather. Just because like, in the last kind of like year, year and a half, it's just been one direction. And so people I think are like, looking for any reason to like, poke holes in this, this like, architectural ship.

Gordon: 19:41

where's new money to work, right? like, I have friend, I have a friend who made a million bucks in

bruce_1_09-12-2024_202329: 19:45

Well, I think like, isn't it, there's some crazy number, like 30 percent of all, like Nvidia employees are like, have like more than 10 million in net worth just in the stock alone. It's like, I mean, like. I don't think there's ever been like an amount of wealth creation that quickly, maybe in any company ever.

Gordon: 20:04

Who is putting more money to work in NVIDIA like, I'm buying. Who hasn't just, isn't already just to the hilt on NVIDIA at this point? Who's dusting it off and going, now maybe it's time to get into NVIDIA. Like, I just, I just feel like at this point, You

bruce_1_09-12-2024_202329: 20:16

I think people, I think people are still going long in NVIDIA as much as they can, like, I think you have people on, like, Main Street who don't even know what NVIDIA does. And they're still putting money to work in NVIDIA because it's such a big name right now. Like it's like, you know how they do the Microsoft, they do the, they do the, like the little ticker at the bottom of Microsoft where they show you like just the market. they show you like NASDAQ going up just at the bottom of everybody's screen. They show the NVIDIA stock price. And like the NASDAQ and the S and P and that's it. It's like in the social consciousness of

Gordon: 20:51

Well, 3 trillion in cap, like if you just go back again, go back 10 years, how many companies would you have to line up to get 3 trillion in cap 10 years ago? I mean, was Facebook public years ago?

bruce_1_09-12-2024_202329: 21:01

But like there's, I mean, I don't think there's a doubt in anybody's mind that there's a like five to 10 trillion company out there right now that we'll see in the next couple of years.

Gordon: 21:09

I mean, we mean, well, I mean the video will be obviously, but like, I think that's kind of the end point is sort of like, company and open, maybe that'll triple. I guess I guess it feels kind of low risk if you're willing to rip and winkle this shit because it does feel like It is real I agree with oracle's comment, larry's comment, you know I just feel like there's so, much and I just wonder how long we're gonna be sideways before this takes off again anything last thoughts on um, we got here obligatory debate. Um, so kamala took uh, poor poor donnie to the woodshed and Gave him the cut between day three, man

bruce_1_09-12-2024_202329: 21:40

I will say though, on the chip discussion, on the chip discussion that they had during the debate for about 30 seconds, like Donald Trump. Donald Trump did get the better, uh, end of the bargain there. She was like, you know, the U S is deploying us isn't selling all these chips to China and blah, blah, blah. And Donald Trump was like, the U S doesn't sell chips to China. You dumb fuck. They all come from Taiwan.

george_1_09-12-2024_172330: 22:06

you go.

bruce_1_09-12-2024_202329: 22:07

was like, it was like one of the better moments in the debate, I thought, for Donald, at least. Because he was like, who would have thought he actually knew that chips actually come from TSM. It's like, it was just shocking. I mean, um, and he was right, too. It was

Gordon: 22:20

that we have a candidate that you're just like, he got a fact right. He said something that was true. I heard you advocate for him because he's like, well, he's going to keep my corporate tax cuts and let me continue my M& A gravy train. Like, you want that sorority system running. You know, that pushed the train.

bruce_1_09-12-2024_202329: 22:36

Dude, we're we're gonna have the last four years, which isn't like the best situation. Look, if they had I think if we had better candidates on either side, I could be convinced. Like if we go back to maybe Barack or we go back to like

Gordon: 22:49

Literally anybody

bruce_1_09-12-2024_202329: 22:50

I guess we never had him,

Gordon: 22:51

pull any, I wouldn't pull back out. I leave him, back on the shelf, but like kind of anybody else, um,

bruce_1_09-12-2024_202329: 22:58

Yeah. Yeah. I

george_1_09-12-2024_172330: 23:00

So, Bernie Sanders is what you're saying.

bruce_1_09-12-2024_202329: 23:02

No, yeah.

Gordon: 23:07

I just, you know, I look forward to just my UBI and just, you know, Bernie's going to triple my food stamps, you know, I'm gonna be able to

george_1_09-12-2024_172330: 23:15

the economy was pretty good when the lower class was getting, uh, it was getting printed, uh, money right during COVID. So,

Gordon: 23:22

I think we should introduce legislation to allow people to buy stocks with food stamps, you know, invest. By

george_1_09-12-2024_172330: 23:32

the white house, as we were talking about before, it's just, it's, And also the regulation, right? And so as much as, you know, Donald Trump may be an idiot, he has friendly economic policies. And so I guess the question I posed to you two are, do you get nervous about the, stock market if the Democrats win here come November? And the and the taxes being corporate taxes Also, she wants to raise capital gains taxes on individuals, right? So that's a double whammy there.

Gordon: 23:58

Eat the Ridge.

george_1_09-12-2024_172330: 24:00

And then, I mean, we've already had it, but like the M& A environment has been extremely challenging, right? So like Lena Khan is, is running wild, like shutting down every, every merger, looking at everything, making it difficult

Gordon: 24:12

deal what was the deal where you're like, God damn it. And he's he's

bruce_1_09-12-2024_202329: 24:15

She killed, she killed Google whiz. Like the reason that it didn't go through is because of like the regulatory heat. They didn't want to deal with the regulatory heat in it on it. Like that was at the one that deal. I heard that that

george_1_09-12-2024_172330: 24:26

security market.

bruce_1_09-12-2024_202329: 24:27

yard line. I heard that deal was at the one yard line and they wouldn't do it because of the regulatory pressure.

Gordon: 24:33

Wow. Poor Google.

bruce_1_09-12-2024_202329: 24:35

would have had massive implications for the cyber security universe.

george_1_09-12-2024_172330: 24:39

have no problem with them killing the Adobe Figma deal. Like that one. To me, like, I would have killed that deal. Being about as liberal as you could in That job. But outside of that, like, a lot of this has been really difficult, to be honest with you.

bruce_1_09-12-2024_202329: 24:54

they're, fighting everything. They're fighting drug companies.

george_1_09-12-2024_172330: 24:57

Amazon and like iRobot, for goodness sakes, you know?

bruce_1_09-12-2024_202329: 25:00

I mean, just, they're taking a machine gun to like the M& A world. It's just, it's insanity. I mean, like, they're they're fighting P. E. companies. from acquiring companies. Like, I mean, There's just no point or purpose to what they're doing. Not only that, they're losing everything. They've lost like every single case. Like it's just,

Gordon: 25:19

So you're saying that if

bruce_1_09-12-2024_202329: 25:20

scaring the ecosystem.

Gordon: 25:23

deals where they come in and fire half the workers for synergy, you know, like those are, that's something that's good for the economy. You know, it just sounds like very self serving what you're saying. Like, I get it. We're all like, kind of like long M& A, like, we all want M& A. Because we profit

george_1_09-12-2024_172330: 25:37

It drives innovation. It distributes innovation faster,

bruce_1_09-12-2024_202329: 25:41

Inefficient businesses are like not gonna work over the long term. Like

Gordon: 25:45

does it need to be google though could be somebody else I mean google's had a lot of anti competitive behavior. So is microsoft. So I kind of don't feel very sorry for google There'll be others somebody else gonna write that check right wiz's value. Somebody's gonna make wiz people rich There's got to be a joke in here about taking a wiz So, we're in

george_1_09-12-2024_172330: 26:01

I mean, all these companies, all of these companies get disrupted, right? Like end of the day, I think capitalism works. You're a monopoly of outsized profits, like, especially in technology. Eventually you're going to be disrupted, right? You can sit there and say, Google is a monopoly. Google probably is a monopoly, but like end of the day, like, their business is more at threat today than it's ever been right with AI. Do they survive that?

Gordon: 26:20

in there doing it to themselves. If that continues to amaze me, I'll be like, Yeah, let's just fuck her. Search results. Here's what AI answer. I don't need the search results. If that's just like, I don't know how that works.

george_1_09-12-2024_172330: 26:29

They have to play the game, right? To stay relevant, so.

Gordon: 26:33

Clayton Christensen, Indonesia Lemma. I've got a lot for that word in MBA. Uh, It's really served me well. So, uh, Anyway, alright. I think we've beaten this news horse to death. Let's, let's get ready for the main, main event. Alright.

george_1_09-12-2024_172330: 26:49

Let's get ready to rumble!

Gordon: 26:52

Well, let's get to CrowdStrike. So, as is our tradition, the bowl goes first and we have a security expert on the team,

george_1_09-12-2024_172330: 27:01

ah, so clever. Bird is the word. That's, uh, Timberland, right? Bird, Bird, Bird bird is the word. rap or 2000 rap knowledge coming into play

bruce_1_09-12-2024_202329: 27:10

that's right. That's right. Well, let me start off with a little description. Maybe the company to just level set where we are. So, uh, The name of the presentation is the bird is the word. Um, and we're talking about CrowdStrike today. So CrowdStrike is, um, maybe the best cybersecurity company platform in the world. Um, it started. About a dozen years ago. Um, and they've built a product off of a single core offering that they started with around the end point. Um, and they've expanded that offering ever since. So maybe to back up even further, people use, uh, antivirus on most of their computers, both in terms of commercial environments, as well as in terms of home or residential environments. Um, you know, back in the day we used to use Symantec or McAfee and we used to Upload their, their latest virus protections and pay them 10 a month. And since then we've sort of evolved in a lot of ways to use, uh, much more fully resourced, um, agents as, as end point, um, Detection and endpoint protection, uh, CrowdStrike started as, uh, simply as an endpoint protection platform. Um, they built their architecture a little bit differently. So they use a single agent on the endpoint to deploy all of their services. And so as you think about commercial environments today, oftentimes people are using anywhere from one to. 20 agents and these agents are all very, very consumptive on the end point. And so they can start to weigh down the computer with overhead. They can conflict with each other and they can make it very, very disruptive for a knowledge worker to be able to, to do their job effectively. And so we'll get to how CrowdStrike came to this in maybe a couple of minutes, but, um, they, one of the key differentiators for their platform is that they use a single agent to do

george_1_09-12-2024_172330: 29:10

So One one James Bond

bruce_1_09-12-2024_202329: 29:13

One James Bond on your end point on on your computer that enables you to protect yourself against everything from signature based attacks So attacks that people have recorded and have made notes on and that they filter out into the universe of folks that are looking to protect people's computers

george_1_09-12-2024_172330: 29:30

So like, known, known attacks. You've seen it before. It's happened. Sorry.

bruce_1_09-12-2024_202329: 29:36

what people call zero day attacks. So if I come up with a new virus and I want to deploy it against Gordon, or I wanted to play it against, uh, George. Um, that would be an attack that nobody had ever seen before. And in order to protect that, you don't have a signature to look at and say, this is something that we've seen before. And so modern day agents and modern day endpoint protection really relies on the ability to look at heuristics and use really machine learning and AI figure out if something's being malicious on the end point. Uh, CrowdStrike is, is a pioneer really in that field in a lot of ways. And so they develop this architecture that allows them to be deployed on end points and understand if there's malicious activity happening on those end points in real time, things that they've never seen before. So it really is a next generation offering. The other piece that's super important about CrowdStrike is that it's a lightweight agent. So oftentimes

george_1_09-12-2024_172330: 30:30

it's James Bond on a diet.

bruce_1_09-12-2024_202329: 30:33

James Bond on a diet, super lightweight, it's cloud connected often. And so most of the intelligence actually happens in the cloud, as opposed, as opposed to actually on the actual endpoint. What happened in kind of, I would say, like the preexisting architecture of endpoints was that You would effectively have a record of all the different types of signature based attacks. You would then connect to the internet and compare those to the new record of all the signature based attacks. And then you would use those two records to see if anything malicious was happening on your endpoint. And that ends

george_1_09-12-2024_172330: 31:06

before your time.

bruce_1_09-12-2024_202329: 31:07

was, oh, it's awesome. Powers. I thought it was like, an early James

george_1_09-12-2024_172330: 31:11

No, no, I mean, they were making fun of, of, uh, you know, of, uh, like, the female agents that were always in the James Bond movie. And she was like, he's like, he's like, what's your name? She's like, Alana Faggiana. Can you say that again? Alana Faggiana. Anyways, sorry.

Gordon: 31:27

the joke about Pussy Galore. Yeah.

bruce_1_09-12-2024_202329: 31:30

so, so, getting back across. So CrowdStrike has built this really interesting offering that they started to take to market in 2011 and on the back of that offering, they've really built just an incredible platform of different cybersecurity solutions that tackle everything from, um, your end point to your network, to your cloud security, to your mobile security. They have a 24 hour seven managed service. They have, uh, Threat hunting service for organizations, and they really built become sort of a one stop shop for enterprises of all sizes to come and solve their security needs and not only do it and kind of like I would say the bare minimum method, but really, really build kind of a best of breed offering across a host of different modules that enterprises are looking to use. Um, and it's really become, you know, this monstrous platform, I think, in in cyber security. Um, and it's been a beneficiary of a lot of different trends, I would say. Uh, you know, if you think about kind of the last 15 years and end point security, a lot of the Uh, Kind of larger players that were originally kind of the first generation of next generation players went away. So companies like silence got acquired. So folks got acquired bit nine, carbon black got acquired. And so what really ended up happening is you have these two legacy companies, McAfee and Symantec that also, you know, kind of got acquired as well. And then you had a next generation of platforms, mostly. CrowdStrike and Sentinel one that really built what people consider kind of the leading edge or the bleeding edge of technology on the end point side. And from that technology kind of kernel, they were able to build a host of different offerings. And we'll talk about a little bit more. But, um, CrowdStrike has really picked up the mantle there in terms of of expanding from a singular base into really a full fledged offering that covers your entire architecture sort of end to end. maybe

george_1_09-12-2024_172330: 33:30

to simplify, like what they do differently, like where, you know, you were describing historically how they would match these known attacks, they're, they're looking for anomalies and what anomaly might be is like your computer suddenly starts acting differently. So it starts sending, you know, all of these, you know, outbound, uh, requests that it never used to do. And so that would seem odd, right. That it suddenly picks up this behavior that it didn't have before. Would the, is that kind of an accurate, like. Description or example, maybe of, of, what they were doing differently.

bruce_1_09-12-2024_202329: 34:01

yeah, I think a lot of the technology that people have used historically, and maybe even today is when you deploy some of these agents into, uh, onto an endpoint or into a network, what they do is they sort of, Begin to figure out what the baseline looks like for that network, like a healthy network effectively. And so they're measuring that baseline and they're monitoring that baseline. And then after they have kind of the gold image of what that baseline should look like, if things that are anomalous start to happen, that starts to trigger the end point to, To, yeah, to alert, you know, effectively the network to alert the user, to alert the sock, which is a security operation center and an enterprise so that people know that something is awry. I would say like the historical approach is just not based on, uh, behavior in the network. It's more based on what they've seen in other networks. And so I think it's a combination of those two things. One, which is like learning how. Each of these idiosyncratic networks in an enterprise is obviously much different than any other network. So it's learning how those idiosyncrasies work and baselining those so that when something does change, they're able to alert. But also it's taking kind of the group knowledge of all the enterprises that you cover to really understand like this is something that's happening in somebody else's network. This is something that we should also, you know, be monitoring kind of across our entire enterprise base. So they get smarter both kind of locally, and I think they get smarter globally and, and building those two different parts of the practice into one offering, I think is what really creates something compelling. Um, so they're able to stop zero days. They're also able to, you know, look at kind of the signature based approach, even though they don't necessarily take it themselves.

george_1_09-12-2024_172330: 35:43

Makes sense.

bruce_1_09-12-2024_202329: 35:46

And so with that, let us begin. Um, so the BRRRR is a word, so maybe a brief history on, on our man, you know, George Kurtz, who,

george_1_09-12-2024_172330: 35:56

George.

bruce_1_09-12-2024_202329: 35:56

built, George, George is right. That's right. You know, no, uh, no, no no family relationship here. Unfortunately, we probably wouldn't have this podcast if there was though, so maybe.

george_1_09-12-2024_172330: 36:07

I mean, this is how I'm making ends meet by, by spending money on our podcast.

bruce_1_09-12-2024_202329: 36:11

yeah, uh, um, so George, uh, you know, grew up in New Jersey and graduated, uh, I forgot from where he graduated from, but he started as an accountant at PricewaterhouseCoopers. Um, and he just, like, For some odd reason in like 1993 got thrown into the cyber security group and six years later, he basically was writing a book about how interesting cyber security was for the entire ecosystem. Um, after that, if you flip to the next slide. He founded, uh, services, he founded a services company called, uh, found stone and found stone went on to develop services for the cyber security world. They eventually got acquired by McAfee in 2004 for 85 million, which back in 2004 was actually a lot of money.

george_1_09-12-2024_172330: 37:03

quote of 10 billion today. No,

bruce_1_09-12-2024_202329: 37:07

yeah, something like that. It's like, uh, it's like seven, uh, uh, NVIDIA Blackwell chips. Um, but, uh, he became number, he became effectively Ben Affleck in, in the accountant, um, as he evolved from sort of a PricewaterhouseCoopers normal, normal, analyst to a founder who had sold his company successfully to McAfee as an accountant with an accountant background. Um, after spending a couple of years at McAfee, they promoted him. From a founder accountant to the CTO of McAfee, which is like one of the craziest, like career trajectories you'll ever see. This guy was like working in Excel models in 1994. And all of a sudden he's the CTO of McAfee, which at the time was like a leading edge cybersecurity company. So he's at McAfee as the CTO. He's working there for several years. He's on a plane, according to him, sitting next to someone who's doing a McAfee update on their computer next to him. And it takes that person 15 minutes to do the McAfee update before they can start working on their computer. And that's when he realized he had to get the fuck out of McAfee and he had to start his own end point company. And so that's where, if you flip to the next

george_1_09-12-2024_172330: 38:17

this, this is a great founding story by the way. So, I mean, it's, it's gotta be worth like 200 billion just based on this alone.

bruce_1_09-12-2024_202329: 38:24

I mean, well, we'll see. We'll get there. Um, that's when we get to George 3. 0 billion, which is also kind of coincidental because that's, that's effectively where they peg his net worth And they also are around a 3 billion revenue company today. So it really was, you know, um, a PwC accountant to the CEO. Probably one of the more, if not the most transformational cybersecurity company we've seen in the last 15 years.

george_1_09-12-2024_172330: 38:55

for the record, not to give away too much about myself here, but my, my dad's name was George and he was an accountant at PwC at one point in time. So you never know. There you go.

bruce_1_09-12-2024_202329: 39:05

the

george_1_09-12-2024_172330: 39:05

be worth, I might have a large inheritance coming my way. Let's go.

bruce_1_09-12-2024_202329: 39:10

He does look a little like you, but

george_1_09-12-2024_172330: 39:11

Is that, is that a real, which one's the real picture of him? The blue suit?

bruce_1_09-12-2024_202329: 39:15

yeah,

george_1_09-12-2024_172330: 39:16

he's pretty suave. I mean, 3 billion makes you look pretty suave.

bruce_1_09-12-2024_202329: 39:20

mean, look, he looks good for being almost 60. Like, if we put, you know, our boy Larry Ellison up there at 70, like.

george_1_09-12-2024_172330: 39:27

Yeah. They've all, they're all, getting something done.

bruce_1_09-12-2024_202329: 39:33

aren't

george_1_09-12-2024_172330: 39:33

the fountain of youth, right? Jeff Bezos believes that. all? right.

bruce_1_09-12-2024_202329: 39:38

Um, so, uh, flipping down to the next slide. Um, so we talked a little bit about this, but basically, you know, CrowdStrike has built a really brilliant concept, right? They use this Trojan horse at the end point to basically architect something that was really unique in the industry in 2011 and use that architecture to get on the end points of thousands and thousands of companies and hundreds and hundreds of thousands of actual end

george_1_09-12-2024_172330: 40:02

Isn't a Trojan horse a virus?

bruce_1_09-12-2024_202329: 40:05

yes,

george_1_09-12-2024_172330: 40:06

I'm just, just, just checking that. They're deploying viruses into their

bruce_1_09-12-2024_202329: 40:11

it's a white, it's a white it's a white hat Trojan horse. Um,

george_1_09-12-2024_172330: 40:15

Alright.

bruce_1_09-12-2024_202329: 40:17

um, uh, and, and they were able to, to go in and, and really deploy lightweight agents across enterprises of really of all sizes, but especially scaled up enterprises. Um, and then start to expand from there in terms of, you know, deploying things like, uh, identity security, deploying things like, uh, cloud security, deploying things like forensics and search and mobile security. Um, and then really one of the accelerants to all of that was, uh, building a managed service that operates 24 7. Most of the time enterprises just like to outsource a lot of this to other people. So when things go wrong, they can choke somebody else's throat instead of, you know, their own, um, don't get any ideas, Gordon. Um,

Gordon: 41:02

Hey man, David Carradine, you know, he just, you know, he's needed a better safety word. And so he had the right idea, man. He was. He was riding that dragon. Val Howa. All right,

bruce_1_09-12-2024_202329: 41:13

But, but, but nonetheless, you know, what ends up happening, I think, is, is not only are you able to expand, but you're also able to create something really, really sticky. I think that, you know, at some point, um, George is going to bring up sort of this, you know, blue screen of death, Microsoft incident.

george_1_09-12-2024_172330: 41:30

What?

bruce_1_09-12-2024_202329: 41:30

Microsoft's fault. Nonetheless, it is one of those things that we can talk about. The collateral damage was almost nothing to CrowdStrike and really won't impact their business in any meaningful way. If if anything, if anything, it's a massive buying opportunity. Nonetheless, we'll come back to that in a second. But CrowdStrike was able to create this threat graph that allows them to do things that really other security companies can't do It allows them to do it in a more lightweight way and allows them to do it with a single threat. Agent architecture, which is also something that, you know, really hasn't been duplicated very much other than by, uh, a couple of other kind of leading next generation players who are scaled, but not, not nearly at this scale of CrowdStrike.

george_1_09-12-2024_172330: 42:12

have to say, so far, you're not, you're not selling me. You've got an accountant playing CTO who's inserting Trojan horse viruses into your computer and, and dealing with blue screens of death. Like, I'm not hearing anything here that's making me excited about putting this on my endpoint. I'm just saying. So, um,

bruce_1_09-12-2024_202329: 42:28

Okay. All right, moving on, moving on. Um, so. We'll get to the, we'll get to the, to the nitty gritty details in a second. I mean, it's, it's really just, it's overwhelming. Like CrowdStrike's ability to grow is like virtually unparalleled at their scale. Like this is like quite quintessentially probably the best enterprise software company in the world, potentially. Like, I don't know if there's any businesses that are better, um, really at But we will get to that in a second. Nonetheless, they've been able to use a single agent that you see here and build a bunch of stuff on top of the data layer and AI layer workflow layer their MDR, their CDR, their threat hunting. They've deployed the Charlotte AI thing, which is like table stakes, I guess, for every company now to have some sort of AI solution. Um, but it's, but it's really their ability to do that. Develop and deploy these solutions and then sell them as modules to the enterprise. That's really very interesting. We'll get to in a second, but CrowdStrike has been able to drive NDR in a way that most companies would only dream of. And that shows up in the numbers. So if we skip to the next slide, uh, CrowdStrike is building a business, um, in really maybe the best market in the world, sort of. It's kind of, it's a hundred billion dollar market. I mean, there might be other markets in like AI or something like that, that might be even bigger. But if you skip to the next slide. I mean, really, this is the best market

george_1_09-12-2024_172330: 43:58

think, I think Shopify claimed they had a bigger TAM, but sorry, keep going.

bruce_1_09-12-2024_202329: 44:02

Who had a bigger

george_1_09-12-2024_172330: 44:03

Shopify, didn't they? What was, no, maybe they didn't. It was,

bruce_1_09-12-2024_202329: 44:06

I mean, like if you have like an 8 percent gross margin business, yeah, your TAM can be like a trillion dollars and you still won't make any money. Um, this is like an 80 percent gross margin business with a 225 billion TAM. Like they? are barely scratching the surface of like what the opportunity looks like here. And even though like, I think we can all agree, the AI native security platform, that TAM feels like a lot of bullshit. Um, but I think that like the, the fundamental point remains like this market opportunity is, is really enormous. I mean, security, as opposed to a lot of other budgets within the enterprise, I think is more resilient. It is something that you can't really compromise on if you're an enterprise of any scale and the fact that like AI has become so prevalent across kind of the adversary networks, the number of threats, the volumes of threats, the sophistication of threats is only getting higher and worse. And so security is becoming even more fundamental, and it's a huge tailwind for the entire industry, especially the leading player in the

george_1_09-12-2024_172330: 45:11

well, if they keep deploying, you know, Trojan horses and their customers, that must help the TAM grow. I'm just, I'm just, saying, all right, I'll drop it. I'm trying to let that one go, but it was just too good.

bruce_1_09-12-2024_202329: 45:27

All right, clearly a George has very little actual material moving on to the next side. Like we said, like we talked about sometimes guys, the best are the best. Let's get me down to the

george_1_09-12-2024_172330: 45:41

Wait, wait, you got to describe in your, uh, your, for our audio

bruce_1_09-12-2024_202329: 45:44

yeah, sorry, for our listening audience only, I am showing the GOATS, uh, Steph Curry, LeBron James, um, and Kevin Durant, uh, wearing their Olympic medals after winning the gold in Paris this past summer. And then if we skip down to the next slide and CrowdStrike might be the best ever. And that's our guy, Michael Jordan in the dream team uniform throwing up a basketball. So, uh, the stakes are incredibly high for the rest of the presentation, but I will tell you that I do think that they could quite possibly be the Michael Jordan of enterprise software

Gordon: 46:20

I good as iv. Very good As iv.

bruce_1_09-12-2024_202329: 46:24

Um, and Teddy KGB shows up. So, um, You know, this is a like we like I talked about before. This is really a best of breed company with best of breed growth. So on the left side of the graph or the left side of the slide here, I'm showing the revenue over the last call it 10 ish years, including the projections out to 2026. There are January fiscal year, I think. So, uh, 2026 will end in January of. So it's basically mostly 2025 when you think about what that means from a calendar standpoint, um, nonetheless, so they, they, they finished, um, 2024, as we kind of alluded to a little earlier at about 3 billion in revenue. This year they should scale that and ramp to 3. 9 billion in revenue. Next year, they should scale that to about 4. 6 billion of revenue. I mean, there are very, very few companies of this scale that are growing this quickly, like in, in any space, like especially in enterprise space and not like a, you know, uh, ad driven kind of Facebook or Google or, you know, Amazon type space where you have like, you have anything, a different market type potential. Um, here this is where you basically are going to market using a direct selling force, um, or channel partnerships or some combination of both. And so you're, you're limited right by your head count in some ways in terms of your ability to get to, you know, infinite amounts of scale. Whereas like on an Amazon or a Google or Microsoft or sorry, a Facebook type platform, you have people just come to the website and start signing up and start using ads. That being said, if you look on the right side of the screen, this shows kind of the revenue growth over the last several years. Uh, in 2025, the estimate is that they'll be at 28 percent revenue growth, which is really best in class for all software companies. At this point, there are no software companies that are growing faster than 30%. Um, the trade off is really coming down to efficiency. Over revenue growth. Um, and so this is a company that's not only like basically scaled at a, at a, a, at a higher rate than almost any other company in the universe. They're also growing faster than virtually every company in the universe, which is like, you know, effectively. Like we talked about the Michael Jordan of enterprise software. Um,

george_1_09-12-2024_172330: 48:42

I look at their absolute numbers, just kind of going off the cuff here, like it seems like every year since 21, like they've been growing about. Uh, I guess a little slower than 22, but they've been growing about 800 million per year. So 22 to 23, they grew about 800 million, 23 to 24, 800 million, 24 to 25. They're expected to do 800 million. So not really accelerating what they're doing there in terms of that number, like a real healthy company, you would want to hope to, even if your growth rate is coming down because of law of large numbers, like you would hope the absolute dollar amount is still growing, um, on average. Overall, you're adding more salespeople, you're continuing to penetrate the market. So why

bruce_1_09-12-2024_202329: 49:26

I think, I think this is intentional, honestly. I think they're basically focused more on efficiency than growth just because that's where the market is today. Like the reality is like, this is effectively like a rule. This is basically a rule of 40 company on free cashflow alone.

george_1_09-12-2024_172330: 49:40

don't they, don't they know that, uh, you know, the Silicon Valley mantra is grab market share at all costs.

bruce_1_09-12-2024_202329: 49:48

I mean, I think they do, I think they do know that, but I think like the Silicon Valley mantra has changed in the last like two years. I think it might be flipping back to like growth at any

george_1_09-12-2024_172330: 49:59

Open, open AI hasn't gotten the memo.

bruce_1_09-12-2024_202329: 50:02

right. I think there's certain subsegments of the market where it's different. But like, if you remember when CrowdStrike went public, like they spiked to like over 60 times revenue and that's back down to like almost, you know, 15 to kind of 20 times revenue. And so they've seen kind of the ups and downs. They've seen the ups and downs of the cycle and like, you know, I think that the The feedback, you know from wall street I think generally has been to focus more on efficiency over the last couple years. I think they're Like they're they're intentionally making that trade off. And I think if they want to turn up growth, we'll just turn down a free cashflow, which they produce in large, large quantities. We'll talk about it in a second. All right, Next slide. But where, where is this coming from? Where is all this growth? Where's all this revenue coming from? Next slide.

george_1_09-12-2024_172330: 50:51

Good question.

Gordon: 50:52

you book, Did you go like on your Facebook to find like, what, what does this mean?

george_1_09-12-2024_172330: 50:58

Yeah. It doesn't resonate with me.

Gordon: 51:01

this your, is this your, is this your lover? Who is this? Did he send you this

bruce_1_09-12-2024_202329: 51:07

the short answer is yes. All right. Next,

Gordon: 51:10

Is he brown? Is he brown?

bruce_1_09-12-2024_202329: 51:14

The truth is it's coming from everywhere. So we talked about like their modular approach that CrowdStrike has taken. I mean, this is honestly like one of the most compelling slides that I've ever seen in an enterprise presentation. If you, if for those of you that are, aren't, um, able to follow the slides online, basically it's showing the number of modules that enterprises have deployed. Um, from fiscal year 18 to the second quarter of 2024 and it shows three different lines, one for five plus modules, one for six plus modules, one for seven plus modules at five plus modules. 2 percent of their audience for 2 percent of their enterprise base was using five modules in 2018. Now over 60%. Of their enterprise basis using five modules with six modules that went from 6 percent to 40 percent with seven plus modules that went from 18 to 24 percent in two years. I mean, these are like Hall of Fame numbers. Like these aren't numbers that people would ever fuck around with. Like, these are like, there is like clear demand, like very, very high stickiness in this business and like a ton of pull from the market. Yes, George.

george_1_09-12-2024_172330: 52:23

You can just, you can just see, all right, I like it. I feel like I'm back in grade school. Um, so, how do they, for just to educate everyone, how do they sell these modules? Is it each all a cart? Do you know? Is there some bundling that goes on that says, Hey, you take five plus modules, we'll only charge you for two. How does that work, and what does that pricing model look like, do you know?

bruce_1_09-12-2024_202329: 52:50

Yeah, they have, uh, they have like four different pricing plans basically. Like they have one that's pretty stripped down. that's mostly the antivirus for like small and medium sized businesses. They have a second one. That's like antivirus plus EDR. They have a third one that includes, I think like one other module, like maybe it's

Gordon: 53:07

Electronic? Electronic dance music? No, wait, that's UDM.

george_1_09-12-2024_172330: 53:14

It plays every time you have a breach.

bruce_1_09-12-2024_202329: 53:16

I think,

Gordon: 53:17

every time we have a news break too, apparently by

bruce_1_09-12-2024_202329: 53:19

I think I think, I think, Gordon's in a K hole guys.

Gordon: 53:23

I really am. I think I got a bad batch. I think I got, this is not

george_1_09-12-2024_172330: 53:27

Stop using Perry's supplier, come on.

Gordon: 53:31

I made it in my bathtub, you know, mail.

bruce_1_09-12-2024_202329: 53:34

They, They, but they basically sell like four out of off the shelf type offerings, all obviously at different price points that range from call it. I think it's like 50 a year per end point. to 200 a year per end point. Um, there's obviously like, you know, pricing baked as you scale, they don't publish those, but you know, if you're Goldman Sachs, you're probably deploying it at Thousands and thousands of end points. And there's going to be a different price for you than if you're, I don't know, um, George's truck stop, um, whatever. So I think it's one of those things where there's obviously a lot of gray, gray area in, in pricing for enterprise models, but generally like they're selling the base case with a couple, like one module and then they're scaling from there. But the, they have like dozens of modules. I think at this point they have like over 23 different modules that are all this. And so they're able to really drive those modules into the market. Like, I think it's one of those things where like, if you can expand with CrowdStrike, why wouldn't you, as opposed to going into the market and buying a new cloud workload

george_1_09-12-2024_172330: 54:35

You want Best of Breed?

bruce_1_09-12-2024_202329: 54:37

platform,

Gordon: 54:38

yeah, that's a good question. I mean, you, know, Cisco

bruce_1_09-12-2024_202329: 54:40

don't want best to breed though. It's obvious here that people are not buying, they think that either CrowdStrike is breast best of breed. It's good enough. It's cheap enough. And it makes sense for them. Look at the scale that they've gotten in multiple deployments across their modules. Like it's,

Gordon: 54:55

mean, just to put the poke on this, right. Then, so the skeptic would say, you know, like Cisco should, you know, sold a lot. Allegedly, you know, the market share reports had all this, like, you know, market share against F5 And riverbed for their like wind scaler. And I forget what the other one was, but, um, you know, but ultimately they were given away for free and allowed them to put in some stats, but like, and I guess it was, I guess good enough, but they just did not. Nobody bought it on purpose. And I suspect that's not what is happening here. I'm just really curious if there's, are they gaming these numbers a little bit, Like giving away a lot of modules? Is there anti competitive behavior happening here too, where it's like giving away stuff to keep other people out? By

bruce_1_09-12-2024_202329: 55:32

you sound like Rina Khan.

Gordon: 55:38

I, uh, you know, I

bruce_1_09-12-2024_202329: 55:39

We got to like, we got to die at Trude and try Kamala supporter here. Kamama, a mamala supporter. Jesus.

Gordon: 55:45

asked in very aggressive army. I'm like I'm right there with JD and Tucker, man. I love those shopping carts.

bruce_1_09-12-2024_202329: 55:56

Um, look, I, I, like CrowdStrike has been showing these numbers, like basically, you know, since they've been publicly reporting and they've continued to get stronger and better, their NDR is. Really world cat class at scale, I would say like their gross dollar retention is above 98%, so like nobody's churning. So like, that's like, I mean, that's a hard number to game, I would say, because you're basically just measuring who's leaving and who's staying. And like, if your gross dollar retention is at 98, then you're doing something. Right. I would say, I would say like their net dollar retention at scale is like over 120%. So that's, that's basically a world class number. So even if there's like. You know, maybe some differences under the hood in terms of pricing breaks that you would give someone to, you know, expand with a different module or platform eyes or bundle or whatever you want to call it like it's working for them, right? Like it really makes their product super sticky. And, you know, there's a big debate, I think, in the cybersecurity world about buying best of breed, buying 10 different best of breed solutions or buying one platform solution that does everything for you. Um, And there's trade offs, right? In pricing, there's trade offs in management, there's trade offs in like evaluation. Let's evaluate 10 different identity vendors and 10 different cloud vendors and then get to a solution that's 5 percent better than CrowdStrike. Like it, you know, it's one of those things I think where there's a ton of risk that you have to balance when, and cost that you have to balance when you're looking at making any of these changes.

george_1_09-12-2024_172330: 57:26

When security Is crucial, Best of Breed is the way to go, in my opinion.

Gordon: 57:30

Yeah, but you've been on The problem is right.

bruce_1_09-12-2024_202329: 57:32

Is it?

Gordon: 57:32

have like security is a space where you can't be like, have just myriad vendors, that's where you have vulnerabilities, right? Is that borders, right?

bruce_1_09-12-2024_202329: 57:41

thing Is though, like, you won't like the best of breed vendors in a lot of these spaces are young startups that no one's ever heard of and like you're never going to get fired for basically selecting CrowdStrike or selecting Microsoft or selecting Cisco like you could get fired for selecting some no named small cyber security company that no one's ever heard of. I'll send the ones that scale. They're like a six or 8 billion company. So you wouldn't necessarily get fired for them either. But like, there are like hundreds of little companies that are like doing identity protection better than everybody else, but it's like, do you want to take a chance on those companies? And like, if something goes wrong, you actually will get fired. They'd be like, why are you not using CrowdStrike

Gordon: 58:20

you're really working hard on your gift searches for this one. What the fuck is this? Ryan, what's his face? Did you think it was married

bruce_1_09-12-2024_202329: 58:25

I don't know who that is.

george_1_09-12-2024_172330: 58:26

Bruce is just trying to pretend like he's 20 years younger than he is. And he's down with, you know, all these memes, but anyways, keep going.

bruce_1_09-12-2024_202329: 58:32

Dude. I got a lot of Riz, man.

Gordon: 58:34

accomplishment. I hate that word. Jesus Christ.

bruce_1_09-12-2024_202329: 58:39

Stop being so sus, dude. I got a ton of Riz.

Gordon: 58:43

No cap, no cap.

bruce_1_09-12-2024_202329: 58:47

All right. So CrowdStrike's next chapter, where we, where the hell are we going? They're going to the top. So basically the way that they articulate their plan over the next five, five, seven years is they're going to go from being a 3 billion company to being a 10 billion company. And like, they have the platform to

george_1_09-12-2024_172330: 59:02

800 million a year.

bruce_1_09-12-2024_202329: 59:04

They have the team to do it. They have the market to do it. And it's just a matter of time until they get to that point. They've, They've, hit almost every single number they've ever published. And the only reason that they're growing 800 million a year, I mean, 800 million a year, right? So you said, so they're growing 800 million a year. Let's just say they grow 800 million a year. They say the next chapter is five to seven years. That's 5. 6 billion. Isn't

george_1_09-12-2024_172330: 59:28

Yeah, it doesn't get you to 10.

bruce_1_09-12-2024_202329: 59:30

So 5. 6 was three. So you're at like 9 billion. And that's if they only grow 800 million a year. So they, I mean, like,

george_1_09-12-2024_172330: 59:38

They gotta keep it up. If

bruce_1_09-12-2024_202329: 59:40

like, there's like, even on the low, low end of the base case, which George is articulating, they're still going to get to basically 10 billion and like,

george_1_09-12-2024_172330: 59:50

just said.

bruce_1_09-12-2024_202329: 59:51

they're only, well, 10 billion in ARR. They're, they're going to the only, so, so CrowdStrike's next chapter over the next five or seven years is to expand across solutions, segments, geographies, partners, and, and I think they have the infrastructure and architecture to do it. If you go to the next slide.

Gordon: 1:00:08

least they're focused.

bruce_1_09-12-2024_202329: 1:00:09

Um, There's nothing that there's nothing that can stop

Gordon: 1:00:14

This is the NVIDIA of security.

bruce_1_09-12-2024_202329: 1:00:16

This This slide basically shows that, uh, uh, CrowdStrike only has 23, 000 customers today. If you look across kind of enterprise software broadly, there are several companies, both in enterprise software, sorry, in cybersecurity, as well as a broader enterprise software space that have hundreds of thousands of more customers case in point Fortinet, which is a very, very much a legacy company has, uh, 680, 000 customers. So the headroom. That CrowdStrike has today is, is enormous. There is no ceiling on their ability to gain market share. And so I think that just developing, continuing to develop a, a, a very compelling offering in this market will allow them to, to get to scale without real kind of concerns around TAM. Yes,

george_1_09-12-2024_172330: 1:01:00

Yeah, thank you. You've noted, you've, you've, uh, you've got my question face down. So, uh, six, what do you happen to know? Like, what is Fortinet's? It's ASP. versus CrowdStrike. Like, is that comparable to say that those 680 are going to spend the same amount on, you know, a crowd

bruce_1_09-12-2024_202329: 1:01:18

I think I, I don't know actually the answer to that. My guess is that it's much, much lower than CrowdStrike's ASP. I don't think they're offering like, I don't think they have as like rich of an offering as many modules as much kind of, um, uh, you know, footprint with the kind of fortune 2000 type customers or fortune 5, 000 type

george_1_09-12-2024_172330: 1:01:39

or are they, just lower quality customers in the end? Smaller SMBs that don't have the same spend. So

bruce_1_09-12-2024_202329: 1:01:46

they they do. I think that's, I think honestly that's a big market opportunity for CrowdStrike, uh, to go after. Like, I think there's, those are much lower quality customers with much lower ASPs, but there's a lot more of them. And so if you can develop And deliver something to an SMB. At scale, you can continue to grow your top line pretty, pretty aggressively. Um, all right, moving on to the next slide, we're running, we're running really light on time here. So the rule of 40, so effectively CrowdStrike has basically the rule of 40. They're targeting the rule of 40 on free cashflow alone. That's a, that's basically no growth. I mean, today they're basically in the last five years, they've been kind of a rule of 60 to rule of 80 type company, which is.

george_1_09-12-2024_172330: 1:02:28

what is the role of just for those who aren't familiar with them?

bruce_1_09-12-2024_202329: 1:02:31

Yeah. For the, for, for folks on the, um, you know, who, who don't know what the Rule 40 is, basically the idea is that if you. Uh, add growth, revenue growth plus, um, you know, free cash flow yield or profit, uh, uh, like profit margin that should get to 40%. Um, and if you do get to 40%, then you're generally considered a high quality company that's kind of like an. Maybe an artificial or maybe an official line in the sand that people kind of use as a barometer for strength of the company. So say you're growing 10 percent and your free cashflow yield is 30%, then you're a rule of 40 company. But if you're growing 30 percent and your free cashflow yield is zero, then you're not a rule of a 40 company.

george_1_09-12-2024_172330: 1:03:16

Yeah, it's like

bruce_1_09-12-2024_202329: 1:03:17

it's just a

george_1_09-12-2024_172330: 1:03:17

quick cheat to say, are you actually, you can, you could throw a bunch of money and grow fast, but it doesn't mean you're efficient and that's going to last long term. So it's kind of like a quick efficiency check on.

bruce_1_09-12-2024_202329: 1:03:28

right. It's, it's just a, it's like a quick way of thinking about like, Is this a high quality company? Like, are they growing efficiently? Are they using their capital efficiently? And how does that translate to the balance between growth and profitability? So, um, the slide shows here, uh, basically a new target model, um, that they are looking at, um, based on their previous target model. And like the two things probably to, to note here are. You know, they're adding 400 basis points on the gross margin line. So basically moving from a seven, a high 70 percent gross margin business to a mid eighties gross margin business and free cashflow yield, they're adding 5%. So this is a company that's like seeing even better, better operating metrics with scale. Like this is a company where they're going to add 800 million a year. So they're going to add 2 billion in the next couple of years and every single metric is going to go in the right direction. Like it's, I mean, it's like, you never see that at scale with these types of companies. Like

george_1_09-12-2024_172330: 1:04:31

target models are great. You can put anything down. You can target whatever you want. Let's, let's see

bruce_1_09-12-2024_202329: 1:04:35

if you look at their last target model, they hit all their targets.

george_1_09-12-2024_172330: 1:04:39

Hmm. Well, it must be, it

bruce_1_09-12-2024_202329: 1:04:41

Like that's the thing, that's the thing, about target models. They're great when you can actually hit them and they've

george_1_09-12-2024_172330: 1:04:46

Isn't, isn't that what I told you about

bruce_1_09-12-2024_202329: 1:04:48

a, as a, as a, as a, reflection of the fact that they have hit their models, go to the next slide. Everyone loves the bird. This is a stock chart showing the growth of CrowdStrike since their IPO. And the stock is up 300 300 percent you're talking about a 60 billion

george_1_09-12-2024_172330: 1:05:10

NVIDIA can't even, wouldn't, wouldn't, you wouldn't even see them on the chart next to NVIDIA.

bruce_1_09-12-2024_202329: 1:05:15

NVIDIA is not an enterprise software company, though. And being with the chip company. So there's a huge difference. Like this is a company 300 percent in like over like one of the, you know, maybe the, toughest market periods for enterprise software companies in the last 15 years. Not only that, the company has significantly checked down from their high point evaluation because of some Microsoft attack that really won't cost them much

george_1_09-12-2024_172330: 1:05:38

Wait, Microsoft attacked them,

bruce_1_09-12-2024_202329: 1:05:40

we're sorry, uh, a Microsoft blue screen of death, which really won't cost them anything at all. I mean, the, the total kind of net impact to CrowdStrike as a result of this big Microsoft, um, blue screen of death situation is about a hundred million dollars, like they're going to lose maybe 2%. Of what they'll do in revenue this year. Like it's a nothing

george_1_09-12-2024_172330: 1:06:01

but yet they're getting

bruce_1_09-12-2024_202329: 1:06:01

And if

george_1_09-12-2024_172330: 1:06:03

they're losing customers and somehow still the target model is getting more efficient. Okay, keep

bruce_1_09-12-2024_202329: 1:06:07

not, they're not, losing, they're not losing customers really at any meaningful scale. revenue. Like this is a, this is an opportunity to buy the company

george_1_09-12-2024_172330: 1:06:16

could, you could screw your customers, have them sue you, in the open market and there's no fallout. Sounds

bruce_1_09-12-2024_202329: 1:06:22

you were. You wouldn't be able to buy this company in the last 12 months for this price. This is like a golden opportunity to buy a company that really

george_1_09-12-2024_172330: 1:06:31

Maybe, maybe you wouldn't

bruce_1_09-12-2024_202329: 1:06:32

with

george_1_09-12-2024_172330: 1:06:33

to buy it in the last 12 months at this price.

bruce_1_09-12-2024_202329: 1:06:36

What

george_1_09-12-2024_172330: 1:06:37

So maybe you wouldn't want to buy this company at the last 12 months at this price,

bruce_1_09-12-2024_202329: 1:06:42

you would, and I'll show you why. If you go to the next slide, these are the comps. And so basically I'll go to

george_1_09-12-2024_172330: 1:06:49

that's a nice looking comp slide.

bruce_1_09-12-2024_202329: 1:06:51

These are the comps. You know, basically, when you think about these comps, you know, my view is like some of them are interesting. Most of them aren't. The reality is like CrowdStrike is a better company than these on on every on every single metric, both from a product standpoint as well as from an operating metric standpoint. And so what I would say is really, if you go to the next slide, you should throw these comps away. Really, the way to think about the company is that

george_1_09-12-2024_172330: 1:07:14

this is what an overvalued company says.

bruce_1_09-12-2024_202329: 1:07:17

This is a 5 billion. If you think about the company in the next couple of years, this is a company that will hit 5 billion in ARR. I don't think there's any disagreement from anybody in the market that they'll hit 5 billion and they'll probably hit 5 billion faster than anybody thinks. They've always beaten kind of their, the metrics or their guidance. This is a company that's seeing a ton of strength across their industry. There's tailwinds in the sector. And if you think about that in terms of the kind of. You know, broader context of where enterprise software should trade. This is a premium company in a premium space. I think them trading at 20 X makes, it makes a ton of sense. They've traded there historically. They're probably trading sort of within that range even today. So ultimately this is a hundred billion dollar company. I mean, like just the, the rough level math of it is so like. In my view, they're trading at 65 billion today. There's at least 40 billion of upside. And then honestly, over the next five years is probably 140 billion of upside. So my valuation for this is just the kiss value, which is to keep it simple, stupid.

george_1_09-12-2024_172330: 1:08:20

Well, when you're at 5 billion, you have to be able to justify that 20 X multiple, which again means you still have, you're still growing fast and you believe you have lots of TAM in front of you. So

bruce_1_09-12-2024_202329: 1:08:30

I think we just showed that

george_1_09-12-2024_172330: 1:08:32

200 billion of TAM. So at 5 billion, like, I mean, yeah, they barely tapped their market potential. They're at like, yeah, two and a half percent of their, their market share. So it sounds very

Gordon: 1:08:42

All

bruce_1_09-12-2024_202329: 1:08:42

no argument here.

Gordon: 1:08:43

thanks for that terse update on the stock, Brucey. Um,

bruce_1_09-12-2024_202329: 1:08:48

I don't know if we have any time for the bear case, although I think we heard that,

george_1_09-12-2024_172330: 1:08:51

Hey, we're just going to buy and say goodbye. All right. I will do my fat, my best to keep this super quick. So let me pull up. This is a, a zero meme, uh, deck, just so

bruce_1_09-12-2024_202329: 1:09:07

Boo. Oh

george_1_09-12-2024_172330: 1:09:10

just so you know. So I'm sure no sell side analyst has ever used this crowd strike striking out. Uh, so that's my title and I have a nice blue screen of death here, just staring at me. And, and, uh, I did, I was actually affected by this. Uh, I got this screen myself. So I, I, have a PC and yes, I was working.

bruce_1_09-12-2024_202329: 1:09:32

Did you, did you churn from CrowdStrike? Did your

george_1_09-12-2024_172330: 1:09:35

if, I had the, if I had the power to, I'd be a Sentinel one customer right now, but.

bruce_1_09-12-2024_202329: 1:09:40

That's a, that's a no for our, for our

george_1_09-12-2024_172330: 1:09:43

Well, it takes time, you know, I'm, I'm talking to it

bruce_1_09-12-2024_202329: 1:09:46

Nobody turned. In fact, they still made their payment to CrowdStrike on time.

george_1_09-12-2024_172330: 1:09:51

Well, we don't, we, we we got to see our, our contract out and more, you know, I work for a tech company. We cover from these things a little faster than some other folks. So, uh, anyways, there's this great, uh, award. Uh, that goes out every year, Cybersecurity Conference, uh, and it's called the Most Spectacular Failure Award. And, uh, this is a picture of the CrowdStrike CEO accepting that award, uh, proudly. So, uh, just to talk to that blue screen of death event.

bruce_1_09-12-2024_202329: 1:10:19

That's not the CrowdStrike

george_1_09-12-2024_172330: 1:10:20

Uh,

bruce_1_09-12-2024_202329: 1:10:21

definitely not. That's definitely not the CrowdStrike CEO. I am 100 percent

george_1_09-12-2024_172330: 1:10:29

have to double check who is accepting that. Yeah. Just cause he doesn't have his blue suit on

bruce_1_09-12-2024_202329: 1:10:33

Uh oh. Uh oh, fake news guys.

george_1_09-12-2024_172330: 1:10:38

it up. They, they won this award and they accepted it. So anyways, most spectacular failure. So that definitely sounds like a company that deserves a huge premium in the market. So here's the quick, uh, here's my quick summary of, uh, of why the bear or what the bear case is. So the blue screen of death, uh, as. As a Bruce was saying this, you know, they, they came out last morning and said, Oh, we don't see, we don't see much of an impact. Uh, I'm going to argue there is going to be an impact. It doesn't happen immediately. It's going to be delayed. And so I think they also didn't do a great job of, of handling this. In fact, you've seen a lot of news flow afterwards about their AKA Delta and others. Uh, and they are winning new customers or helping customers feel like, hey, you've got their back once And when you cause a problem, um, I think there's lots of execution left to prove in the expansion areas. And while you might have a big TAM I don't think it's truly proven outside of the endpoint area. Um, and there's still a prize for

bruce_1_09-12-2024_202329: 1:11:45

You don't think there, do you think there, is a TAM? Or do you

george_1_09-12-2024_172330: 1:11:48

think they still have to prove that they're, that the, the end point business. is not the one driving the results. So they're still pretty nascent in a lot of those areas. When you

bruce_1_09-12-2024_202329: 1:11:58

Gordon's Mexican internet connection.

george_1_09-12-2024_172330: 1:12:06

exactly. See, so, uh, So anyways, uh, I, so technically I will get to the Delta thing here in one second. I'm not gonna spend too much time on it. So. I would argue they did not handle this crisis as well as they should have. So what should you do in a crisis? You got to communicate the issue clearly to your customers. And so, you know, CrowdStrike came out, they put a blog and social media about it, very technical. Didn't really have much empathy for their customers. And so I gave them kind of grades here on like, Hey, what would, what would a plus company do? In this situation. Well, you know, given kind of the lack of clarity and empathy, I gave him a B minus on that front. So they did communicate, take decisive action to fix the problem. This is probably where they did the best they did. It was a very simple fix. You just roll back the update, right? I did this actually myself, uh, when I had the blue screen of death, so they had 99 percent of affected computers back online by the end of business. Uh, that day. So you missed a day of business. Next you apologize. You apologize. You apologize profusely. Uh, the CEO apologized. However, there were some caveats around, Oh, this is, this is, you know, because of X, Y, and Z end of the day, no, you just need to apologize. So I gave them a B there. The one where I think they've really flubbed this and I didn't give them a F. I give them a D minus here is accommodate your impacted customers. So they came out and they said. Gee, sorry customers, uh, and sorry IT professionals that had to like work all night and, you know, respond to all your, your, figure this out for all of your employees. Here's a 10 gift card for your troubles. Uh, there were lots of blowback on social media. There was a lot of IT professionals that didn't even accept the 10 gift cards because it was ridiculous. That's almost worse than, than offering nothing. That's like You know, someone gives you a, you know, a penny for your troubles. It's why don't bother. Um, you know, the customers are really impacted. So Delta, as an example, uh, they have come out and blamed Delta. So it's almost like victim blaming here where they're coming out and saying, Delta, you screwed this up, not us. Well, you know, Delta, Delta trusted them with their cybersecurity. Software, they didn't create the blue screen of death. Um, they didn't recover as fast as, as others for reasons unknown. Uh, however, CrowdStrike is publicly shaming them and saying, you know, it's your fault Delta. So that to me is horrible. Like if I'm a it professional and I'm thinking, what software do I want to go with? I'm a security professional. Do I want to go with, like, we have an incident. I want someone who has my back and is going to resolve the issue. Uh, if you're an it at Delta, like, and you cost the company 500 million, you're probably not going to have a job next year. Let's just say

bruce_1_09-12-2024_202329: 1:15:12

this, uh, are we still spending three slides on this tiny incident, which is a hundred million dollar blip in the company's history? Like they already reported after this incident happened and it's having like an almost meaningless de minimis effect on the business. Like your own business itself is not going to turn

george_1_09-12-2024_172330: 1:15:32

already baked. They're reporting on a quarter that this happened.

bruce_1_09-12-2024_202329: 1:15:36

They're projecting out for the rest of the year too. It's going to have no impact.

george_1_09-12-2024_172330: 1:15:41

quarter is almost big too. You're in final. You know how long it takes to close

bruce_1_09-12-2024_202329: 1:15:45

They've talked to all of their major customers. Like this is not going to have any impact on their

george_1_09-12-2024_172330: 1:15:50

Over time. I agree. Like people are probably not going to pick up and churn most likely, but I think it's going to slow the momentum of new deals and I think it's

bruce_1_09-12-2024_202329: 1:15:59

it won't, they've talked about that. They basically said like some deals are pushing to the second half of the year and that's it. Like it's a tiny, it has a tiny impact

george_1_09-12-2024_172330: 1:16:09

I'm just saying it's still unknown just because they wave the wand and say everything is great and their earnings call doesn't mean it actually is going to be.

bruce_1_09-12-2024_202329: 1:16:18

in and out of the news cycle, unless you're Delta, who's obviously going to churn, like every other of their like, 4, 000 companies is just going to sit there and like, wait for them to like, make a fix and buy their next module. Like it's not going to have an impact.

george_1_09-12-2024_172330: 1:16:36

you're, if you're coming in top of the funnel, you're a new customer and you're weighing your different options. I've got, you know, CrowdStrike. I've got Palo Alto Networks. I've got Sentinel One. Who am I going to go with? This is going to be in the back of your mind. It's going to damper that funnel and that's not going to be seen for several quarters. So my argument is they are going to get like hit later on. And so, yes, it'll look rosy and people will, will pass this by, but I wouldn't be so sure about it is all

bruce_1_09-12-2024_202329: 1:17:03

this isn't like, but this isn't the type of thing that you can just easily like take out of your environment. Like, this is

george_1_09-12-2024_172330: 1:17:10

No, I, and I'm not arguing I'm arguing for that pipeline, that future pipeline, new customers coming in top of funnel. I think that's where you're going to see it. It's going to be harder to close business because of this event

bruce_1_09-12-2024_202329: 1:17:21

I don't, think, I don't, think so. Cause like the cyber in the cybersecurity world, for example, like almost 90 percent of the deals are sold through the channel. If you look at CrowdStrike's channel partnerships, I 160 of their partners have made over$10 million on the CrowdStrike offering, which is an insane number, and it isn't something that the channel is gonna move away from. They're making tons of money on CrowdStrike. They've, they've built an educational

george_1_09-12-2024_172330: 1:17:48

But does that channel also push other products? It's not usually just a one product channel.

bruce_1_09-12-2024_202329: 1:17:53

IT it ends up being they're going with the strongest offering in the market. and like CrowdStrike has been around for 10 years building the strongest offering. Like it's, this is a,

george_1_09-12-2024_172330: 1:18:02

if I'm Joe, Joe IT guy, and sure, this channel partner approaches me and says, Hey, you know, you should buy CrowdStrike. I'm gonna be like, Aren't they the ones that caused the blue screen of death? Maybe I'm gonna go look elsewhere.

bruce_1_09-12-2024_202329: 1:18:15

you know, you're not though, because not only do they have the most comprehensive offering, they have The most like well established, like this is, the type of thing that could happen to every, any

george_1_09-12-2024_172330: 1:18:24

it can, but it didn't. Uh,

bruce_1_09-12-2024_202329: 1:18:27

with every company. It's not like there's any like less risk per

george_1_09-12-2024_172330: 1:18:30

honestly, it was not a horrible event. The problem is, it was very public. And I think their handling of it sucked, particularly around

bruce_1_09-12-2024_202329: 1:18:38

that might be true, but it, it doesn't, I don't think it impacts the near or long term. I mean, it doesn't make the near term value, but it's like, it's, it's like a opportunity. It's like, it's

george_1_09-12-2024_172330: 1:18:48

not an opportunity, it's a

bruce_1_09-12-2024_202329: 1:18:49

It's an opportunity, to,

george_1_09-12-2024_172330: 1:18:51

will play out over several quarters, not the next one or two, but it's going to be several quarters when that new pipeline is coming, coming forward. So we'll

bruce_1_09-12-2024_202329: 1:18:59

and out.

george_1_09-12-2024_172330: 1:18:59

on this. I call it a risk. I call it a risk. Will you agree it's risk? It's not risk free. There's not a zero risk that this, Doesn't impact him.

bruce_1_09-12-2024_202329: 1:19:07

I think it's, I think it's the risk. that they have articulated in their financial model, which is to say that it's like a hundred million dollar risk on a business. That's almost 4 billion. Like, that's the risk that it is. It is a risk. It's a 2. 5 percent risk. Like, they've quantified it for us.

george_1_09-12-2024_172330: 1:19:28

Uh,

bruce_1_09-12-2024_202329: 1:19:29

People have asked, what's the magnitude of the risk? And they've quantified

george_1_09-12-2024_172330: 1:19:33

Yeah. Well, if you trust Management then good for you. I don't think they have complete visibility to everybody out there. That's coming new into the funnel and how this has impacted their view and brand of the company. So.

bruce_1_09-12-2024_202329: 1:19:47

Management has built a company that's up 300 percent from the IPO after this incident. I think we should trust

george_1_09-12-2024_172330: 1:19:56

companies that go up and then eventually do go down. So, all right. So this is a this is a tan estimate for a CrowdStrike. So somehow, uh, I don't seem to see my 225 billion on here. I guess that was 2028 and I only go to 2027 here, but this is courtesy of, uh, the Raymond James initiation report. They pull a lot of this from Gartner. And I highlight in 2024, the part that's tied to endpoint. And that's really like the core of their market. Like today, like all of these other modules, it's great that they've got people taking them up. But the one part that they've truly where the majority of their ARR is coming from is endpoints. And so the part that you can count on, yes. Endpoints. So how big is that endpoint market? It's like 25 billion in 2024. How big is the scale? Company. They are almost 60 billion EV company, almost 59 billion or whatever it is. 58 billion. They. You know, their market or EV is multiples the size of the true market that they play in today. And so really you're betting on unless you're betting on them being able to execute in these other markets. And I don't think it's proven. So if you look at market share estimates,

bruce_1_09-12-2024_202329: 1:21:16

think that, I think, I think, it is proven like a lot of their businesses, like, yeah, if you look here, for example, like, if you look at, let's just take the identity market, you know, for example, like, this is a business that's grown to several hundred million dollars in just a couple years. And it

george_1_09-12-2024_172330: 1:21:30

It's a hundred. They have a hundred 400 million, uh, in identity, right? Compared to 3 billion in endpoint. They have 500 million in cloud, 270 million sim. The rest of it is teeny tiny. All those other modules, nothing. So, like to me, when you say, you know, are you buying best in class? Are they, is there some bundling going on here? Like given that you have 79%, uh, or sorry. 65 percent taking, you know, 5 modules or more, it really feels like you should have more revenue in these other categories than you do. More ARR, and you don't. And to me, that says, like, they're giving these away very cheaply, so they're leading with the one thing that they really have an edge on, which is endpoints. And then they're trying to crowd out other people by giving you just good enough. And so the question is, end of the day, like, can they really stand out, can they really stand up, In all these other areas in the way they have an endpoints. And I think there's a lot of execution risks there.

bruce_1_09-12-2024_202329: 1:22:30

I, I, I like, I, I think that if, even if you used like a sum of the parts here, like the growth rate of these businesses on a standalone basis, you have a company going, like, let's just say it's the identity company and we carve that one out. It's going from two 40 to four 13.

george_1_09-12-2024_172330: 1:22:46

to do that without the endpoint, getting that at a discount because you're buying the endpoint.

bruce_1_09-12-2024_202329: 1:22:51

you're not necessarily getting a discount,

george_1_09-12-2024_172330: 1:22:53

It feels like it.

bruce_1_09-12-2024_202329: 1:22:54

413 is what their actual revenue is, isn't it?

george_1_09-12-2024_172330: 1:22:57

Yeah. But is that a market price? Because end of the day, like if you have 65 percent buying five or more modules and your endpoint ARR is, is 3 billion, but your total. ARR is 4 billion. Like you're not like you should have a 50 percent if you're charging market prices. Right. Let's just say those are all created equal. Like your revenue should be a lot more than four. It should be 50 percent more than 3 billion at least. So

bruce_1_09-12-2024_202329: 1:23:24

the unit, I can, I mean, like, they're not losing money on this on a unit economic basis. Like they have 80 percent plus gross margins, like they're selling these businesses independently and they're

george_1_09-12-2024_172330: 1:23:36

growth margins. I agree. But like end of the day, I don't know that you're going to be able to charge. basis of the products themselves. You're giving them away at a, at a cheap price. And so it's either

bruce_1_09-12-2024_202329: 1:23:46

Even if you're giving it away at a cheap price, even if you're giving away at a cheap price, it's still adding to your NDR. And if even if you didn't have, like, if you just, you can still use some of the parts based on selling these at, a cheap price or an expensive price, unless it's hurting their gross margin profile, you can like identify and evaluate these companies on an independent basis.

george_1_09-12-2024_172330: 1:24:05

well, it's not the same. It's not the same as, as looking at Wiz and cloud security and saying Wiz is charging the best, their best of breed and they're charging a full market price. Like those companies are not going to be worth the same. Like if you want cloud security and that's your number one thing. You're going to go to whiz. You're not going to go to, you're not going to go to cloudflare,

bruce_1_09-12-2024_202329: 1:24:23

like you, it doesn't matter what the name of the company is. You just have to look at the traction in the market. And like, this is the

george_1_09-12-2024_172330: 1:24:29

but their traction, the markets, because you're attaching to endpoint, which is what they're good

bruce_1_09-12-2024_202329: 1:24:32

Even if you are, even if you're using the endpoint to attach the rest of your business to that market, it doesn't matter. You can still evaluate it as an independent business. Like you're just using your advantage to your benefit, but you

george_1_09-12-2024_172330: 1:24:43

you are, but you're never going to recognize the full economic value.

bruce_1_09-12-2024_202329: 1:24:47

The, the endpoint market's getting bigger and they're staying like relatively flat. But the point being like, it, it doesn't matter if, like the the numbers, it would show up if the, if the offering was that bad, then like you would, it would show up in the numbers. The growth wouldn't be there. No one would use the service. But the growth is

george_1_09-12-2024_172330: 1:25:03

once the endpoint market's saturated, It will show up in the numbers, and so I think that huge TAM is not as large as you

bruce_1_09-12-2024_202329: 1:25:09

It won't, it won't show up and like the endpoint market is only 50 percent saturated by, uh, next generation vendors of which there's, Sofo, SentinelOne, like Trend Micro, like there's a whole host of companies that are in the market. The other 50 percent is like Symantec and McAfee. There's still a long tail in the endpoint market. And like not only that, if they had a bad offering, the growth from these segments, whether it's cloud or SIM or identity, wouldn't be as strong. It just wouldn't like, you wouldn't have people use it. Like there w there would be no attach rate.

george_1_09-12-2024_172330: 1:25:42

I agree, they're, they're good enough, but I'm just saying, end of the day, like, your TAM is really constrained. Going back to my TAM slide here, Instead of the 2024 number

bruce_1_09-12-2024_202329: 1:25:53

it's strange, your TAM slide is showing 150

george_1_09-12-2024_172330: 1:25:56

it's really

bruce_1_09-12-2024_202329: 1:25:57

of TAM in 2027. It's not, your TAM slide is, showing 150 billion in 2027, which I agree, that's probably the right number,

george_1_09-12-2024_172330: 1:26:07

Yeah, and Endpoints is still below 40 on that. A company that's worth 60.

bruce_1_09-12-2024_202329: 1:26:13

it doesn't, but it

george_1_09-12-2024_172330: 1:26:14

that's their market. They haven't proven to me that they deserve, and by the way, a big chunk of that is services, which we should just chop off because low margin. Crappy business. No one

bruce_1_09-12-2024_202329: 1:26:23

how is like, but I don't understand. How is, how have they not proven it to you that they've been able to grow in these other markets? If you go down, they're doubling their cloud business. They're doubling their identity business and year for year basis at scale. Like those are IPO businesses in and of themselves.

Gordon: 1:26:39

You know, like this is not cloud fair. Like, I feel like there's a lot of alternatives.

bruce_1_09-12-2024_202329: 1:26:42

This is selling to the Fortune 10, 000, and like, all of them. They have 5 percent share and that's a two and a half billion dollar business. I'm saying they need to get to a 5 billion business to be worth a hundred billion dollars. Like yeah, they are, they've

george_1_09-12-2024_172330: 1:26:56

have got to continue, prove out this TAM, and there's a ton of execution. They have not proven out observability, which is a huge part of that TAM. I don't care about that services piece of the TAM. The TAM that they have any traction on is 70 billion. And that's, and today that's a much smaller TAM. You're counting on that growing, which, fine.

bruce_1_09-12-2024_202329: 1:27:21

the next slide. Like, the cloud business is IPO able in and of itself. The sim business, IPO able. the identity business IPO able. Like, these businesses, even the services

george_1_09-12-2024_172330: 1:27:31

Cause they're riding on the back of, of end points.

bruce_1_09-12-2024_202329: 1:27:36

It, uh, that's not a bad thing. It's, uh, it doesn't, it's not

george_1_09-12-2024_172330: 1:27:39

Wait, when this company matures, okay, when this company matures, which will happen right now, you're already getting, it's like. It's Like Cisco of the years ago.

bruce_1_09-12-2024_202329: 1:27:48

You're saying the market's moving in dog years they're giving it away. For their cloud business are giving it. away for$270 million. They're giving it away for 413 million. All of these businesses are growing a hundred percent year over year They're giving that

george_1_09-12-2024_172330: 1:28:03

underpricing it.

bruce_1_09-12-2024_202329: 1:28:04

That's giving it. away. I would like to be a business that gives that type of shit away. That's, that's what the business. I want to be in. Like I would invest in each of these businesses

george_1_09-12-2024_172330: 1:28:12

great business, but you are paying a huge, let's in the interest of time, let's jump there. Um, you were paying a huge

bruce_1_09-12-2024_202329: 1:28:20

in cybersecurity and potentially the best company in enterprise software. They deserve the premium.

george_1_09-12-2024_172330: 1:28:24

the best, the best company in enterprise software causes all their customers to blow up. All right, good good checkpoint there. Who has, tell me what, what incident has Palo Alto Networks had? What incident has Fortinet had? What incident has Checkpoint had?

bruce_1_09-12-2024_202329: 1:28:40

Palo Alto is a good example of like where this company is going to be. It's just like, it's a foregone, it's a matter of time before they're a hundred billion dollar company. Palo Alto is a good example of

george_1_09-12-2024_172330: 1:28:48

And their multiple will compress. It's not gonna, the problem is you're assuming this multiple stays no matter what size. that they grow to.

bruce_1_09-12-2024_202329: 1:28:56

they're, they're

george_1_09-12-2024_172330: 1:28:57

is going to compress as they, eat up this TAM and people realize there's not as much for them to go

bruce_1_09-12-2024_202329: 1:29:02

Did they're, eating eating up a tam of$150 billion is gonna take a decade. They're gonna get to

george_1_09-12-2024_172330: 1:29:10

I'm arguing it's closer to 70. they, haven't proven to me they have a 150 billion dollar TAM. So they trade at 13 times for revenue. The next closest company data dog 11 times, uh, Palo Alto networks are sorry, 12, call it 12 times Palo Alto networks, 12 times the growth for data dog is Right in line with CrowdStrike, so next 12 months, CrowdStrike is expected to grow 22%, which is quite a bit below what you were showing, by the way. That is the latest estimates from the street. Datadog, 21%, so same level. Palo Alto is a little bit lower, 14%, but they've got some things going on with scale there that gives them an advantage, as well as a superior rule of

bruce_1_09-12-2024_202329: 1:29:51

we're growing, uh, eight percentage points lower and they're trading one multiple trend lower.

george_1_09-12-2024_172330: 1:29:57

Look at, Look at, look at, Datadog. I would, I, there's a reason I sold Palo Alto Networks. It's not cheap and the growth isn't there. They got to, they got to show the growth. End of the day, when you look at this thing versus the peers that are actually growing fast, there's some of these companies up top like Checkpoint and GenDigital that are being valued on a. On a cashflow basis, they're not growing, right? They're the slow growth company. So I'd almost cross them off this list. But when you look at them at our metric, we've talked about in the past, even to the next 12 months growth, the next 12 months revenue divided by growth, the lower, the multiple, the better. They are one of the most expensive stocks on this list by a mile. Sentinel one, their nearest competitor is 0. 26. They're at 0. 61. They're three times almost the value there. Uh, for someone who's also growing faster than they are, they're growing at 27 percent end of the day.

bruce_1_09-12-2024_202329: 1:30:48

you, this is, this is, you know, this is a good example of you, you get what you pay for. And CrowdStrike is the best company on this page and you have to pay up to, uh, own their shares.

george_1_09-12-2024_172330: 1:31:01

All right. So let's put a little more of that in perspective. So this is from, uh, uh, uh, Altimeter. I was gonna say Altimeter. Sorry, sorry, Altimeter. Um, this shows some of the efficiency metrics. So like if CrowdStrike is such the superior company, like let me compare it to like it's peers. And so, you know, You talked about rule of 40. So what is CrowdStrike expected to do in the next 12 months? Rule of 40, 48%. So that's again, adding the growth plus the profitability together percentage to get that. Well, if I look at the next closest peers, Datadog is at 47. So basically the same Palo Alto 51 superior Zscaler, which we haven't talked about 45, they're all right. In that same range. Sentinel one is a little bit lower 32. So they are playing catch up. To CrowdStrike. The other thing I'd love to pay attention to is like, give me like, what's the payback, right? Uh, are they an efficient sales machine? So maybe that justifies, again, the premium. But again, I look at them, right now they're being estimated 26 months according to Altimeter. You look at Datadog, 19 months. Zscaler, 25 months. Those are both superior. We don't have it for Palo Alto because they're not a pure cloud play. SentinelOne is behind them. They are losing to CrowdStrike. Like, they have to spend a lot more to get a sale at 42 months, which is why they are the lowest valued. But if you look at this, I would say, Datadog, Paloalto, and Zscaler should be valued, it should be valued just the same. All these metrics are right in line, or

bruce_1_09-12-2024_202329: 1:32:37

Yeah, the, the big difference between those companies and CrowdStrike is that CrowdStrike has twice as much revenue. CrowdStrike basically has 4 billion. Zscaler has two,

george_1_09-12-2024_172330: 1:32:49

about

bruce_1_09-12-2024_202329: 1:32:50

has two, Datadog has two, like CrowdStrike is operating at the exact same scale with twice as much revenue, like that. It's like I said, this is an unparalleled business in enterprise software at this scale. Like, I think, look, Datadog, Zscaler, those might be the LeBron James and Kevin Durant and, you know, CrowdStrike's MJ.

george_1_09-12-2024_172330: 1:33:12

So, so this is, uh, well my friend Gordo loves these, these regressions. So I, I stole, uh, altimeters versus getting, uh, the analysts working on this. Um, and so they show kind of this, this metric. Going across the next 12 months of revenue multiples compared to growth. And they plot the universe of SAS companies. And so this just shows like CrowdStrike is kind of way up into the right, which is like the most expensive of all companies, um, compared to like all these other peers that

bruce_1_09-12-2024_202329: 1:33:44

place on the

george_1_09-12-2024_172330: 1:33:45

that had similar metrics. So, uh, they are the most expensive by far. So why, you know, why would you want to pay that much for this business that. One, just, you know, put risk into their pipeline to, you know, already they're proven TAM in my mind, like they already traded their proven TAM several years out or above it. It down and I'm not, it doesn't justify the price tag for me. So that's kind of the bear case for me. Um, again, I'm not, I'm not saying they're a bad company. I'm not re I agree with you. Like they're a great company, but I just don't know if this execution can continue on for what's priced into the stock. This is my last slide. I'm done.

bruce_1_09-12-2024_202329: 1:34:26

I mean, I'll give my official view. I think we all know what it is. Like, I'm a, I am actually a

george_1_09-12-2024_172330: 1:34:32

You're a raging

bruce_1_09-12-2024_202329: 1:34:33

I think they're one of the, they're one of the

george_1_09-12-2024_172330: 1:34:35

in your PA?

bruce_1_09-12-2024_202329: 1:34:37

But they're one of the better cyber security companies, if not the best that we've seen in the last 15 years. Like it's one of those things like irrespective of a price and everything else. Like if you just wanted to own cyber security and like not think about it for the next five years. This is probably one of the better, if not the best way to play it. Um, they have the scale, they have the technology, they have the team. And like, even though we disagree about it, I think they have the market and the tailwinds to go and build a very, very, very big business. Um, and I think a hundred billion dollars is a matter of like, when, not, not if, if in terms of whether they get there or not.

george_1_09-12-2024_172330: 1:35:10

So I will say I'm not, uh, I I am truly a little more on the bear side, but I'm not a big bear, but I just feel like there's the risk reward is not something that I want to jump on. Um, here, even though they're down 36%, like they were, you know, this chart, 36 percent feels like there's still a premium price. And I do think there's a lot of risk. What I, what I, have nibbled on personally is a little bit of Sentinel one,

Gordon: 1:35:38

Yeah, so I wish, I guess I can try to be a tiebreaker. I guess, ultimately I, I struggle with, part of me is like I struggle with these expensive sort of best of breed names. And like, I just feel like this part of me, part of my ignorance, the security market, it just feels like this market's incredibly diverse and people can have like many vendors because there's many different applications and it's just like, it's just not, Super clear to me for that. A company is 5 percent share of their core market that that's just like the persist, you know, going to be the winner forever. I didn't love seeing that 79 percent of revenue in point. Even there's a lot of adoption, but I will say in the past, winners like this tend to do well. Like the Facebooks had, you know, had some pullbacks and this had a massive comeback and like I've, I've, I've missed all the big, like, you know, by the winter kind of investments. Cause they look expensive. Right, and this is a, it's a lot of room, like five billion is not that much revenue. I do agree it's a huge team. I guess, gun to head. Gun to head, I guess I'm buying it, I feel like it's not as obvious to me that even though they've done really well in the recent past with the, with the, it's not an emphatic, I feel like there's, there's some doubt. You raised some good doubts, I think on this one, but, uh, I guess it's a narrow, decision, I guess for a Brucey boy.

george_1_09-12-2024_172330: 1:36:59

Yeah. And I'm not a, I'm not a strong bear either. As I said, I'm pretty neutral on it.

bruce_1_09-12-2024_202329: 1:37:04

Speaking of bears and bulls, bulls, when bears, when. Pigs get slaughtered.

george_1_09-12-2024_172330: 1:37:12

Oink oink. All right. See you next time on Just the Tips.