By CCN Markets: The IPO gold rush continues. Traders have moved on from the lastest shiny thing, Beyond Meat, to Wednesday's latest offering. That would be CrowdStrike, a California-based cyber-security firm. CrowdStrike is notable for helping out with investigations into the Sony Pictures and Democratic…
By CCN Markets: The IPO gold rush continues. Traders have moved on from the lastest shiny thing, Beyond Meat, to Wednesday’s latest offering. That would be CrowdStrike, a California-based cyber-security firm. CrowdStrike is notable for helping out with investigations into the Sony Pictures and Democratic National Party hacking incidents.
Underwriters planned to sell CrowdStrike to the public at $28-$30 per share. High initial demand boosted the offering price to $34. But that was nothing. The stock opened at $63 for an 80% rise from the already elevated offering price. It closed Wednesday’s trading at $58 for a 71% first-day pop.
Traders love CrowdStrike’s offering in large part because it is one of the fastest-growing cloud companies around. It currently has a triple-digit annual revenue growth rate.
Not everyone is buying CrowdStrike though:
On Monday, Salesforce.com announced a megadeal, buying cloud data visualization firm Tableau for $15.7 billion. This is one of the largest deals ever in the cloud space and has set off a rip-roaring rally for other sector stocks.
For years, cloud companies have focused on growth at all costs, often while running large losses. Skeptics doubted this would pay off. But Salesforce has confirmed the business model now. Investors that bought Tableau in 2017 tripled their money. Not surprisingly, scores of cloud stocks are up 10% or more this week following the Tableau deal.
Could CrowdStrike be the next takeover target? It’s abnormal for a newly-public company to get taken over. That said, Rohit Kulkarni of MKM partners believes CrowdStrike could be acquired. He cited the company’s strong operational history and the increased pace of dealmaking in cloud security stocks.
Douglas Harned of Bernstein said that there are at least 20 companies seriously competing in CrowdStrike’s niche, including large firms like FireEye, Palo Alto Networks, and Microsoft. But Harned views its ability to implement natively into Amazon Web Services as a key positive. Additionally, Harned noted that while its gross margins are low, that’s primarily due to high sales and marketing costs as it seizes market share.
On the topic of competition, CEO George Kurtz responded to a CNBC question with what makes CrowdStrike better:
“What is fundamentally different is that we really built the first cloud platform for security. When you think about Workday, ServiceNow, Salesforce – there hasn’t been a foundational cloud platform for security.”
Obviously, Salesforce and ServiceNow have been among the hottest tech stocks in recent years. Kurtz argues that other competitors have just solved individual security problems rather than establishing a complete security ecosystem. If CrowdStrike can build a similar platform for security, the stock would still have huge upside even after its opening day surge.
However, prospective investors should know that CrowdStrike uses a dual-class share structure. This greatly limits shareholders’ ability to kick out bad management if necessary. This has been a feature of many 2019 IPOs, such as Pinterest, and some investors have stopped worrying about it. But, as we saw with Facebook recently, key executives like Mark Zuckerburg become difficult to rein in with a dual-class structure.
This article was edited by Josiah Wilmoth.