This has been the year of big-ticket tech IPOs. Despite the poor performance from ride-hailing companies Lyft (LYFT) and Uber (UBER), cloud-based security company – CrowdStrike is all set to launch its IPO. The company published its IPO prospectus and seeks to raise around $100 million. This puts the company at a valuation of $3.3 billion.
The poor performance of Lyft and Uber has not deterred the Sunnyvale-based company from going ahead with its IPO. But it is important to point out that the company has not yet made a profit. It is going to be interesting to see how investors react to the company’s listing.
CrowdStrike was established by two former McAfee executives back in 2011. Its cybersecurity solutions are a bit different from what people have come to expect. The company has developed a technology that allows it to monitor the behavior of users in networks and then its security software tackles the threat. The company believes that with the rise of cloud computing, its software has great potential. CrowdStrike has stated that the market could be worth $29.1 billion in two years.
That being said, the company has failed to make a profit since its inception. Furthermore, its losses are mounting from one year to the next. In 2019, CrowdStrike recorded losses of $140 million. On top of that, in 2018 it stood at $135 million and the year before that, the losses were pegged at $91 million.
Things to Consider
When it comes to investing in a company that is still not profitable, there is a range of things that investors should consider. One of the most important things to point out is that the venture capitalists and the chief executive will own Class B shares. They will have 10 votes each and that will ensure that the company does not ever go off the rails.
That being said, there are other things to consider as well. Perhaps the most vital one is that there is a lot of competition in the particular niche that CrowdStrike operates. Symantec Corp and McAfee are the company’s big-ticket competitors. They are highly capitalized companies with the capability of investing a lot of money in this tech.
Last but not least, marketing costs have surged over the years. But it has now come down as a percentage of the revenue. The performance of CrowdStrike on listing day will go a big way in showing whether Wall Street believes in the company or not.