CrowdStrike Holdings Inc. shares soared nearly 100% at times in their trading debut Wednesday, and the chief executive compared the cybersecurity company to cloud-software giants like Salesforce.com Inc. and ServiceNow Inc. while watching the stock’s huge first-day pop.
CrowdStrike /zigman2/quotes/212513426/composite CRWD +8.01% priced an initial public offering Tuesday evening at $34, higher than the expected range. CrowdStrike sold at least 18 million shares at that price to raise more than $610 million at an initial valuation of about $6.7 billion. Underwriters — led by Goldman Sachs, JP Morgan, BofA Merrill Lynch and Barclays — had access to another 2.7 million shares, which could push the total raised to more than $700 million.
Shares gained as much as 97% in Wednesday’s session, though they pulled back to trade lower than the opening price of $63.50. The stock closed up 71% from its IPO price and was up another 5% in premarket trading Thursday.
CrowdStrike is focused on endpoint detection and response, a hot area within cybersecurity with more than 20 “competitive players,” according to Bernstein’s Douglas Harned. Competitors include security companies like FireEye Inc. /zigman2/quotes/204730283/composite FEYE +4.65% and Palo Alto Networks Inc. /zigman2/quotes/207599953/composite PANW +1.29% , as well as larger players such as Cisco Systems Inc. /zigman2/quotes/209509471/composite CSCO -3.18% and Microsoft Corp. /zigman2/quotes/207732364/composite MSFT -0.23% , which rolled out new cloud products earlier this year. A key advantage for CrowdStrike may be that the company has native implementation with Amazon.com Inc.’s /zigman2/quotes/210331248/composite AMZN +1.17% AWS, Harned wrote.
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In an interview with MarketWatch on Wednesday, Chief Executive George Kurtz said that his company has an advantage over similar companies like FireEye because it was a cloud native, and against the larger players because it was focused on endpoint protection in the cloud.
“It’s the same story of Siebel vs. Salesforce /zigman2/quotes/200515854/composite CRM +0.90% ,” Kurtz said in discussing CrowdStrike going up against larger tech companies, comparing his company with a cloud pioneer that managed to defeat entrenched competitors. In his eyes, CrowdStrike is already in an area that established companies are attempting to enter by “continuing to Band-Aid what they have” with new offerings.
In the fight against other cloud-native security companies, Kurtz said that CrowdStrike’s advantage lies in its modular software architecture, which he compared with ServiceNow Inc., another successful cloud-software company that has managed to grow its addressable market. He suggested that CrowdStrike will be able to continue to offer new products that address different markets or opportunities because the software platform his company offers is able to bolt on those offerings easily on the back end.
The company saw its revenue nearly double in the fiscal year that ended in January, to $249.8 million, though it reported $140 million in losses. “While gross margins are lower than those of others, the biggest costs are in sales and marketing, which are higher than any other comparable firms as a percent of sales,” Harned said.
“We are still in the early innings of our growth curve,” Kurtz said.
CrowdStrike joins a group of other software companies that have made big splashes with recent IPOs. Zoom Video Communications Inc. shares /zigman2/quotes/211319643/composite ZM +13.75% are up 175% since the videoconferencing company’s April IPO, while PagerDuty Inc.’s stock /zigman2/quotes/210571191/composite PD +5.50% has more than doubled since its mid-April debut. Software companies have been well received by the public market even as higher-profile names like Lyft Inc. /zigman2/quotes/208999293/composite LYFT +4.25% and Uber Technologies Inc. /zigman2/quotes/211348248/composite UBER -1.38% have sputtered.
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Though CrowdStrike has only been a public company a day, it has already been floated as a potential takeout target. MKM Partners’ Rohit Kulkarni sees the company as an “attractive acquisition candidate” given its history of execution and increased merger activity in the cybersecurity field.
When asked if he saw CrowdStrike buying other companies or being bought, Kurtz suggested that he has built the company to be a public, stand-alone offering with room to grow, “a lot like a Salesforce model.” He said that the IPO was really just another funding round for CrowdStrike — “I call it our Series F.”
CrowdStrike’s IPO comes as the Renaissance IPO ETF /zigman2/quotes/207665280/composite IPO +2.04% has climbed 34% on the year and as the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.38% has gained 15% in that time.