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Crowdstrike goes public at $11 billion. Like global warming, computer security doesn’t exist, can never be solved, and demands billions of US tax dollars yearly in perpetuity

June 14, 2019

Shares of Crowdstrike soared 70% during trading Wednesday, finishing at $58 a share and giving the company a reported market capitalization of $11 billion.”

June 13, 2019, “Propaganda Is The Root Of All Our Problems, Caitlin Johnstone, Medium.com, via Zero Hedge

Authored by Caitlin Johnstone via Medium.com”

“A new article by Forbes reports that the CEO of Crowdstrike, the extremely shady cybersecurity corporation which was foundational in the construction of the official CIA/CNN Russian hacking narrative, is now a billionaire.

George Kurtz ascended to the billionaire rankings on the back of soaring stocks immediately after the company went public, carried no doubt on the winds of the international fame it gained from its central protagonistic role in the most well-known [alleged] hacking news story of all time. A loyal servant of empire well-rewarded.

Never mind that US government insiders like Hillary Clinton had been prepping for escalations against Russia well in advance of the 2016 elections,”…

1/21/2015: Mrs. Clinton: “I think we should be putting more financial support into the Ukrainian government,” Clinton said during a paid speaking engagement in Winnipeg, the first of two such appearances in Canada on Wednesday. “I think we’re smart enough to figure out how we would hold them accountable for that and to make it very clear that the money comes with certain strings and that in the absence of accountability, the money won’t come.”…[Mrs.] Clinton added that Ukrainian President Petro Poroshenko is doing “everything he knows” to shore up Ukraine’s finances but that the former Soviet country also needs more military aid. “I do think we should do more to help Ukraine defend its borders,” she said.” [But keep US borders wide open.].

(continuing): “and that their preexisting agendas to shove a geostrategic obstacle off the world stage benefited from the hacking narrative as much as George Kurtz did.”…

Above, 1/26/2018, Max Blumenthal twitter

(continuing): “Never mind that Crowdstrike is tied to the NATO narrative management firm known as the Atlantic Council, which receives funding from the US government, the EU, NATO, Gulf states and powerful international oligarchs. Never mind either that Crowdstrike was financed with a whopping $100 million from Google, which has had a cozy relationship with US intelligence agencies since its very inception.

Never mind that to this day the DNC servers have not been examined by the FBI, nor indeed were they examined by the Special Counsel of Robert “Iraq has WMD” Mueller, preferring instead to go with the analyses of this extremely shady outfit with extensive and well-documented ties with the oligarchic leaders of the US-centralized empire. Also never mind that the Crowdstrike analyst who led forensics on those DNC servers had in fact worked for and was promoted by Robert Mueller while the two were in the FBI.”…

7/19/2018, “The CrowdStrike analyst who ran the forensics on Democratic National Committee servers previously worked closely with Robert Mueller at the FBI and was personally promoted by Mueller to an Assistant Director position within the bureau. According to archived material from the FBI website, Shawn Henry was promoted by then-Director Mueller in September 2008:

“Shawn Henry has been named Assistant Director of the FBI’s Cyber Division. Director Robert S. Mueller, III appointed him to this position to replace former AD James Finch, who was recently named Special Agent in Charge of the FBI’s Oklahoma City Division. Most recently, Mr. Henry served as Deputy Assistant Director of the Cyber Division.”

After leaving the FBI, Shawn Henry became President of CrowdStrike Services, the private security firm hired by Clinton campaign counsel Marc Elias — another friend of Shawn Henry — to analyze the DNC server, the same month Elias hired Fusion GPS and Robert Steele to compile the dossier pinning the hacking on not just Russia but also the Trump campaign.”

(continuing): “The real underlying currency of our world is narrative, and the ability to control it….

George Kurtz is one clear example today of narrative control’s central role in the maintenance and expansion of existing power structures, as well as an illustration of how the empire is wired to reward those who advance pro-empire narratives and punish those who damage them; just compare how he’s doing to how Julian Assange is doing, for example.

But you see examples pop up every day:

*The US State Department just got busted using a $1.5 million troll farm to manipulate public discourse on social media about Iran.

*Video footage has just surfaced of the OPCW Director General admitting that the OPCW did indeed deliberately omit any mention in its official findings of a report from its own investigation which contradicts the establishment narrative about a chemical strike in Douma, Syria, an admission which answers controversial questions asked by critics of western imperialism like myself, and which the mainstream media have not so much as touched.

(Mintpress News broke a story the other day about a new narrative management operation known as “The Trust Project”, a coordinated campaign by establishment-friendly mass media outlets for “gaming search-engine and social-media algorithms in collusion with major tech companies like Google and Twitter.”

*In a new interview with The Canary, UN Special Rapporteur on torture Nils Melzer explicitly named the mass media as largely responsible for Assange’s psychological torture, excoriating them for the way that they “have shown a remarkable lack of critical independence and have contributed significantly to spreading abusive and deliberately distorted narratives about Mr Assange.”

*In a new essay called “Freeing Julian Assange”, journalist Suzie Dawson reports that “Countless articles appear to have been obliterated from the internet” about Assange and WikiLeaks, amounting to some 90 percent of the links Dawson examined which were shared in tweets by or about WikiLeaks and Assange since 2010.

*I just finished reading this excellent Swiss Propaganda Research essay about the little-known fact that “most of the international news coverage in Western media is provided by only three global news agencies based in New York, London and Paris.”…

Because whoever controls the narrative controls the world….

Freedom and democracy only exist within the western empire to the extent that it keeps up appearances….

Politics is downstream from narrative control, which is why the 2020 US presidential race is already a contest to see what level of Democratic corporatist warmonger will be running against the incumbent Republican corporatist warmonger. The narrative-controlling class does its level best to hide the fact that anything’s fundamentally wrong with the system, then when people notice it’s deeply broken they encourage them to use completely impotent tools to fix it. “Don’t like how things are run? Here, vote for our other puppet!”…

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Comment: Forget about US voters and elections-they’re meaningless. We learned that US taxpayers are born into slavery to the US Mass Murder and Starvation Machine. How can US monsters be stopped? Answer: Break up the US into parts, for example SW states joining Mexico. The US War Machine will never stop any other way.

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Added:

June 12, 2019, As Crowdstrike Shares Soar On Its IPO Day, CEO George Kurtz Joins The Billionaire Ranks, Forbes, Kerry A. Dolan

“It’s been a banner day for George Kurtz. The CEO of security software firm Crowdstrike took his company public on the Nasdaq and became a billionaire in the process.

Shares of Crowdstrike soared 70% during trading Wednesday, finishing at $58 a share and giving the company a reported market capitalization of $11 billion. Kurtz owns just about 10% of the company—though some of his shares are pledged as security for a loan, according to the company’s filing with the Securities & Exchange Commission. After discounting a portion of the pledged shares, Forbes calculates that Kurtz, 48 years old, is worth just over $1 billion.

Crowdstrike, based in the heart of Silicon Valley, in Sunnyvale, was cofounded in 2011 by Kurtz and Dmitri Alperovitch offering cloud-based cybersecurity. It gained recognition after it helped uncover the Russian hacks to the Democratic National Committee (DNC).”

[Ed. note: What “Russian hacks?” The US government says it never examined the DNC computers for whatever reason. No one but Crowdstrike has ever examined them. Crowdstrike’s opinion is not sufficient in a case involving millions of taxpayer dollars. We’ve been given no evidence that emails from DNC or Podesta computers were obtained via “hacking” or that “Russians,” were involved.]

(continuing): “Customers include [the FBI, the Republican Congressional Committee] payment processor ADP, web-hosting company Rackspace and Tribune Media. Alperovitch is not listed as a shareholder in the company’s SEC filing.

Prior to cofounding Crowdstrike, Kurtz held executive roles, including worldwide chief of technology, at security firm McAfee. Back in 1999, Kurtz founded a security technology firm called Foundstone Inc. He has a B.S. in accounting from Seton Hall University.

The valuation for Crowdstrike is quite rich, particularly given its significant losses. The company disclosed it posted a net loss of $140 million on $219 million in revenue in the year through January 2019. Forbes contributor David Trainor spells out how Crowdstrike is spending heavily to acquire its customers.

A spokesman for Crowdstrike did not reply to a request for comment.” image from Crowdstrike

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Added: For Crowdstrike investors

June 11, 2019, “What You Need to Know About CrowdStrike’s (CRWD) IPO, Forbes, David Trainer

“CrowdStrike (CRWD), provider of cloud-based cybersecurity, is expected to IPO on Wednesday, June 12. At a price range of $28-$30 per share, the company plans to sell up to $540 million with an expected market cap of ~$5.7 billion. At the midpoint of the IPO price range, CRWD currently earns an unattractive rating.

CrowdStrike has some impressive credentials in the cybersecurity space. The company’s technology helped to identify Russia as the source of the DNC hacks during the 2016 election,”...

[Ed. note: As the Forbes author knows, in a case involving the US government and millions of taxpayer dollars, we’re told no one but Crowdstrike ever examined the DNC computers. Obviously, the author’s link to the CrowdStrike website doesn’t provide readers with substantiation that the DNC was “hacked” or that “Russia” did it.  The US government says it never examined the DNC computers for whatever reason. Fine. That doesn’t change the fact that CrowdStrike’s original claim and its posting of links to subsequent “independent” articles are proof of nothing.]

(continuing): “and it boasts 44 members of the Fortune 100, including Amazon Web Services (AMZN) as customers. On the other hand, the company has significant losses and will need to grow rapidly to justify an expected market cap that is almost 23 times 2018 revenue.

This report aims to help investors sort through CrowdStrike’s financial filings to understand the fundamentals and valuation of this IPO.

Growing Revenue Leads to Growing Losses

CrowdStrike was founded in 2011 with the goal of using artificial intelligence and cloud computing to create a more sophisticated cybersecurity platform. The company’s technology has been used to combat many major hacking incidents over the past five years. In addition to the DNC hacks,”…

[Ed. note: The DNC hacks…Other than CrowdStrike’s word, where is proof that the DNC was “hacked?” Such proof could easily have been obtained, but we’re told no one tried.]

(continuing): “CRWD helped identify the perpetrators of Chinese spying on the U.S. defense sector and linked North Korea to the Sony Pictures hack in 2014.”…

[Ed. Re: North Korea and “the Sony Pictures hack in 2014″

(continuing): “This positive press [eg. I guess unsubstantiated claims that the DNC was “hacked” were “positive press”] has helped the company rapidly acquire new customers. CRWD increased its subscription customers from 450 at the beginning of 2017 to 2,516 in 2019, or 137% compounded annually. The company now counts 44 members of the Fortune 100 as customers.

However, CRWD spends a lot of money to acquire these customers. In fiscal year 2019 (which ended on January 31), the company spent $173 million (69% of revenue) on sales and marketing. As a result, the company’s net operating loss after tax (NOPAT) increased by 11%, from -$95 million in 2018 to -$106 million in 2019. See Figure 1.

Figure 1: CRWD Revenue and NOPAT: 2017-2018

CRWD Revenue & NOPAT

CRWD Revenue & NOPAT, NEW CONSTRUCTS, LLC

Encouragingly, sales and marketing costs declined as a percent of revenue, down from 88% in 2018. CRWD will need to keep growing revenue faster that marketing costs in order to achieve profitability.

Best in Class Cybersecurity System

CRWD estimates that its addressable market is ~$25 billion, but it faces significant competition in its industry. Legacy antivirus providers like McAfee and Symantec (SYMC), network security vendors like Palo Alto Networks (PANW) and FireEye (FEYE), and endpoint security providers BlackBerry Cylance and Carbon Black (CBLK) compete with CRWD.

Even in this crowded field, CRWD has managed to stand out. Gartner Peer Insights recognizes the company as the highest-rated vendor for Endpoint Detection and Response Solutions based on customer reviews.

In addition, CRWD’s customer retention rate backs up its high level of customer satisfaction. CRWD measures customer retention in two ways: Gross Retention and Net Retention. Gross Retention measures the year-over-year loss of customers, while Net Retention measures the year-over-year change in total spending from existing customers. Figure 2 shows that both Gross and Net Retention rates are high and increasing.

Figure 2: CRWD Dollar-Based Gross and Net Retention: Q4 2017- Q4 2019

CRWD Customer Retention

CRWD Customer Retention, NEW CONSTRUCTS, LLC

“CRWD’s Gross Retention rate of 98% in Q4 means it lost just 2% of customers year-over-year. For comparison, competitor Carbon Black had an 87% retention rate last year. Meanwhile, CRWD’s Net Retention rate of 147% means it grew revenue by 47% year-over-year in Q4 before even factoring in the revenue from new customers acquired during the year.”

CRWD’s superior retention explains how it managed to grow revenue by 110% last year while Carbon Black grew revenue by just 30%. The two companies started the year with a similar level of revenue and spent similar amounts on marketing, but CRWD is retaining and attracting customers at a much higher rate.

Building a Moat Around Data

The bull case for CRWD rests on the assumption that the company can leverage big data to turn its current leadership position in the industry into a self-reinforcing cycle. As CRWD attracts new customers based on its superior service, it gets more data with which to train its AI, which makes its system even better, which attracts even more customers, and the cycle continues.

At the same time, many of CRWD’s competitors are significantly larger and have a major resource advantage. If CRWD can’t turn its data into a real competitive advantage, it may struggle to stay ahead of competitors that can afford to spend significantly more on R&D.

Public Shareholders Have No Rights

CRWD is going public with a dual-class share structure. The Class A shares sold to the public will have one vote per share, while the Class B shares held by insiders and early investors get 10 votes. Upon the completion of the IPO, Class B shareholders will hold ~99% of the voting rights in the company, which means public shareholders will effectively have no say in corporate governance.

DCF Model Reveals High Expectations

My reverse discounted cash flow (DCF) model shows the expectations implied by CRWD’s IPO price are high, but achievable.

In order to justify the midpoint of its IPO range, $29/share, CRWD must grow revenue by 40% compounded annually for 10 years and achieve NOPAT margins of 10%, the same as Fortinet (FTNT) in 2018, the most profitable cybersecurity company we cover. See the math behind this dynamic DCF scenario.

In this scenario, CRWD would earn $7 billion in revenue in 2029, about ~30% of its projected addressable market.

Overall, the expectations implied by CRWD’s valuation are high but not as impossibly high as I’ve seen with other IPOs. The current valuation presents significant downside risk if the company fails to maintain its leading position in the market.

Critical Details Found in Financial Filings by My Firm’s Robo-Analyst Technology

As investors focus more on fundamental research, research automation technology is needed to analyze all the critical financial details in financial filings. Below are specifics on the adjustments[1] I make based on Robo-Analyst[2] findings in CrowdStrike’s S-1:

Income Statement: I made $38 million of adjustments, with a net effect of removing $30 million in non-operating expense (12% of revenue). You can see all the adjustments made to CRWD’s income statement here.

Balance Sheet: I made $70 million of adjustments to calculate invested capital with a net decrease of $26 million. You can see all the adjustments made to CRWD’s balance sheet here.

Valuation: I made $461 million of adjustments with a net effect of decreasing shareholder value by $461 million. Our largest adjustment is $439 million (8% of market cap) in employee stock option liabilities. You can see all the adjustments made to CRWD’s valuation here.

Disclosure: David Trainer, Kyle Guske II, and Sam McBride receive no compensation to write about any specific stock, style, or theme.

[1] Ernst & Young’s recent white paper “Getting ROIC Right” demonstrates the link between an accurate calculation of ROIC and shareholder value.

[2] Harvard Business School Features the powerful impact of research automation in the case study New Constructs: Disrupting Fundamental Analysis with Robo-Analysts.

David Trainer: “I am the CEO of New Constructs, LLC, an independent research firm in Nashville, TN. I care more about the truth than my ego. The purpose of New Constructs is to help res…”

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Added: “It seems that any class which opposes its own destruction is accused of being populated by racist and ignorant folks that can’t see that salvation lies in a carbon-managed and globalized world. It becomes imperative, therefore, to shut down all the venues where such an ‘ignorant lot’ could communicate their views, attempt to organize and thereby threaten the prevailing social order.”

6/13/19, “From Dollar Hegemony to Global Warming: Globalization, Glyphosate and Doctrines of Consent,” Colin Todhunter, Counterpunch

“There has been an unprecedented campaign to re-engineer social consensus in the West. Part of this strategy, involves getting populations in Western countries to fixate on ‘global warming’, ‘gender equity’ and ‘anti-racism’: by focusing on identity politics and climate change, the devastating effects and injustices brought about by globalized capitalism and associated militarism largely remain unchallenged by the masses and stay firmly in the background….

CT: Can you say something about the Gilets Jaunes (Yellow Vests), Brexit and the Trump electoral phenomenon.

DR: Combine aggressive globalization, constant financial predation, gutting of the Western working and middle classes and a glib discourse of climate change, anti-racism and gender equity and something has to give. French geographer Christophe Guilluy predicted the reactions in some detail, and it is not difficult to understand. It is no accident that the revolting working- and middle-classes are critical of the narratives of climate crisis, anti-racism and gender equity; and that their voices are cast by the mainstream media as racist, misogynist and ignorant of science.

It seems that any class which opposes its own destruction is accused of being populated by racist and ignorant folks that can’t see that salvation lies in a carbon-managed and globalized world. It becomes imperative, therefore, to shut down all the venues where such an ‘ignorant lot’ could communicate their views, attempt to organize and thereby threaten the prevailing social order.””

[DR is: “Denis Rancourt, researcher at Ontario Civil Liberties Association, in a new report. Rancourt is a former full professor of physics at the University of Ottawa in Canada and author of ‘Geo-economics and geo-politics drive successive eras of predatory globalization and social engineering: Historical emergence of climate change, gender equity, and anti-racism as state doctrines’ (April 2019).]

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