CrowdStrike And The Crowded Market (Podcast Transcript) - CrowdStrike Holdings, Inc. (NASDAQ:CRWD)

Editors' Note: this is the transcript version of last week's podcast on Crowdstrike (CRWD). We hope you find it interesting.

Daniel Shvartsman: 2019 has seen an IPO boom in the markets as unicorns and major companies come public and give investors a chance to participate in exciting growth stories, though with less than exciting prices in a lot of cases. This week we look at CloudStrike, a cloud cyber security provider that checks each of those boxes to see whether the fundamentals outweigh the valuation.

Mike raises questions about how the company describe its aims and whether that's really that special.

DS: I look at triple digit revenue growth and a number of positive customer metrics and try to take that to the other side of the investing story.

DS: The company is still in its volatile initial days and is down nearly 10% since we started looking at it last week. It also still trades at around 30 times next year's estimated sales. Is there a way to think about this, the way a venture capitalist would, or would that be a classic mistake. We're going to discuss on this week's Behind the Idea.

Welcome to Behind the Idea. I'm Daniel Shvartsman.

DS: Today we're covering a hot new IPO, that is generating crazy growth and earning crazy multiples as it turns around an industry. No, it's not Beyond Meat, we're talking CrowdStrike, ticker symbol, CRWD. The cyber security company appears to have beyond impressive revenue growth in a sector that would seem to be an ongoing need in our world. But it's also priced that way since its recent IPO. We take a look at three Seeking Alpha articles, one from our colleague Marc Pentacoff that is optimistic about the company if not necessarily bullish on the stock. One from Bert Hochfeld, that was a pre-IPO bull case, and one from Wilsonville Capital that is more skeptical about the valuation.

We try once more to wrap our value-oriented investing approach round a fast growing story to see whether it's worth it and whether there's anything we can look at.

Before we begin, Behind the Idea is the podcast that looks what makes great investment analysis work, based on ideas from Seeking Alpha ecosystem. Neither Mike nor I have any positions in any stocks we expect to discuss. Nothing on this podcast should be taken as investment advice of any sort.

With that said, Mike happy Friday, what…

MT: Got a Beyond Meat reference, and at the top that's good, that'll please our supervisors.

DS: Yeah, shout out to George Moriarty, who is the Editor in-Chief, Seeking Alpha and who's hoping we will say something about Beyond Meat.

MT: There it is George.

DS: So Mike, the CrowdStrike, it's this cyber security company, where do you want to start in terms of how you look at the company through these articles. Anything that sticks out to you?

MT: Oh man. Does anything stick out to me? Yeah, I mean we're going to probably get into all sorts of different things. So the first thing is -- and even Marc Pentacoff and Bert Hochfeld, who both were bullish on the business were cautious on the level, I think at least a little bit. And these are two people who know a fair amount about software and information networks. We're cautious about the idea of understanding the underlying technology in any detail. And that's even more true for me.

So as we talk about this company, one of the big kind of overhangs for us is what is this -- what does CrowdStrike do, and how does its solution work? So maybe that's where I'd like to start. My understanding is CrowdStrike has kind of two main offerings for customers. They do information security and the first offering is a sort of updated version of McAfee virus scan, something like that. Software that lives on device, that detects threats and works to neutralize them.

And then the other component is a kind of upscale intelligence. They have this data-centric model that helps identify threat activities, not only from the customers' perspective, not only for you but also for CrowdStrike's other customers. And so by cloud sourcing all of the information from customers, CrowdStrike is able to deploy better solutions that benefit the entire customer base. As I say that, I wonder how that's not true of other companies, like could that possibly be an innovation that no else has thought of before?

And then I guess on top of all that they have a premium offering where information security specialist will kind of be actively monitoring your threats. And I guess these cool hacker people will be in some kind of command center typing away at their keyboards to stop the little red skull and cross bones from reaching the center of the maze or whatever it is that these information security people do. So that's where I want to start, what is this thing?

DS: Well, I think your explanation which obviously derive -- we're deriving from the same sources partly, the articles we read and potentially whatever we read in the S-1 or prospectus. But yeah, I think that's, I think the idea here is -- or the context to add this to is we're in the cloud computing age which as I understand it is that servers are -- computing power is publicly available, not in the literal. Anybody can walk into it, but you pool your resources rather than running a ton of servers in your own building or whatever else.

And so, with that you have a lot more flexibility. You could add servers, you can scale up faster, the cost are less than having to build out your own servers, whatever else. But obviously you're open a little bit more, people flexing about, hackers and whatever else. And what I think is interesting when you look at some of the motivations here, something that comes up a lot in the articles is that CrowdStrike is trying to increase the cost for hackers to get what they want done to really what you…

MT: Of course they are. That's their job. I saw that too, but what it's like, what is -- I'm cranky, so look out. What of course they want to -- they're an information security business that's their job. That's the job of any security outfit is to make it more costly for people to steal or penetrate defenses of the customer. That's like a new firm in economic lens that's what security services are.

DS: Sure, but we can -- let's take -- let's take an analogy. Here is how I would -- here is how I am sort of understanding it. I am going to use soccer because I can have it in my head clear what they're trying to do and I apologize if I get nerdy or contrarian.

MT: CrowdStrike, the striker, is that where we are going?

DS: No, wasn't going because of strikers. But what I'm thinking is one way of defending in soccer is to put ten men behind the ball to play a really low line and to have everybody sort of back at the -- and the most simplistic way of thinking about is, to have everybody in the penalty box defending whatever else. And when you have that as your approach which teams will do against the best teams in the world if they just don't have -- if you're a little club from the middle of the England and you're playing Manchester City you might really park the bus is the phrase, right and you are going to get a large shout too, but because in soccer goals they drive in.

You got to get a lot of shots, shot after but because in soccer the goals are still really difficult because the goalie can use his hands and everything else, you can still trying to pull off a happy result and you can catch them where they're napping, you can really hold off goals or whatever and so that's an approach. That's a common approach and the contrast is something that for example ‎Liverpool‎, which just won Champion's League. Their coach, Jurgen Klopp is known for the gegenpressing, the -- all over the fields, pressing of the ball, attack.

As soon as you lose the ball, you chase, it's like a full court press in basketball, Rick Pitino and the Kentucky teams of the '90s or whatever, like always attacking, always attacking, which also in sports you get tired or whatever else, becomes the drawback. But the idea, Klopp for example is known to say that the best playmate here in the world is a good press, because he don't need to have a super star in your team if you steal the ball in an attractive area.

And as I read about it, Marc put together a quote from the Founder and CTO, which talks about -- you can just have antivirus and malware. So you try -- I'm basically paraphrasing or re-reading what Marc has in his article, you try and catch the attack at the door by inspect the files. As forensics you try to catch them after the facts. There is network focus security where you set up a firewall and sort of that to me sounds like parking the bus and then the real time log analysis where you're trying to just pull all the information that's flowing on the cloud and then catch the problem.

That's how I understand it. And I think that's what they're doing. And so when they say increasing like antivirus and malware, that doesn't really increase the -- I have to be a little bit more clever but it doesn't really increase the cost to me of trying to hack into your servers or whatever. But I think we're both at the risk. I'm certainly at the risk of talking without true fundamental understanding but that's sort of how I'm thinking about is, it's not just a matter of yeah of course they're trying to defend. It's that they're trying to be more proactive.

And what I was sort of thinking in light of that is as, again when you go into new sector and you're trying to wrap your head around it, some might say put it in the too hard pile, right? Stick to your circle of confidence but one of the things that I like in these articles is the sort of soft quantitative analysis, the idea of looking at, and I know last week we talked about Cars.com (CARS) and you had done at looking at Glassdoor for Cars.com at the time. Looking at things that are available on the internet that aren't part of the company materials, they're not part of the SEC filings but that are relevant, that can help inform your case. Trade magazines, is one example. In this case Marc cites how they compete against another competitor called Carbon Black (CBLK) and who has better ratings from Gartner. And Gartner is the -- it's a renowned tech information reviews company, consultancy, I can't remember exactly how to describe them.

But that's like a pretty good standard. And so I thought that like once we're at this level of, not really sure what they're doing, one way to kind of get into, do they know what they're talking about is to try and understand how the industry views them, how experts view them and whether their employees are motivated and happy, with that then you can sort of see what new positions they're opening. And so I thought that was an interesting way to try to unpack this. It was coming from somebody who understands this better than we do, but I don't know. So does that -- do you buy that as a way to -- do you buy my analogy, I guess, and then since then I smuggled in the other point the other point do you buy as a way to understand something new using those sorts of indicators?

MT: Do I buy your analogy? Sure, I'm still not sure that I understand how that different strategy is necessarily going to lead to a more attractive business model or a better competitive position. And I'm also not sure still how differentiated it really is. It strikes me as the kind of behavior that an information security company would be just doing. And maybe that's -- maybe that shows my ignorance but I don't understand how these information security companies work? It did not strike me as a world beating strategy but again I don't really know.

That was a good explanation though of CrowdStrike's philosophy. And I think that gets to some of the things I was talking about. Dynamically responding it sounds like they have algorithmic correlation analysis that helps track different behaviors by different views. So yeah maybe they have something special in terms of their understanding of the ways threat behavior works, that helps them provide better services to everyone. I'm still kind of don't know, but fine. I understand the argument.

In terms of the outside sources and using qualitative information, I think it's generally very valuable and should be a part of everyone's approach. It doesn't always lead you to any different. The informational value can be low as a result of the sort of fruits of your exploration and that was kind of how I felt reading Marc Pentacoff's article. There were two competitors. One is CrowdStrike and the other is Black something. Danger Black -- Carbon Black not Danger Black, Carbon Black. And they both had extraordinarily higher ratings on Gartner. I think they were both in the 4.5 star out of 5 category, and had a good, yeah pretty good I think would recommend ratings across the two of them.

And so that's good. That's comforting right that you're pleasing to your customers, that you create value to your customers and you're at least on par. And I think Marc even made the case that potentially CrowdStrike was doing a slightly better job than Carbon Black. But does that encompass the entire competitive field these two companies and does it tell us, does it change our sort of decision about how we feel about what type of business model and strategy CrowdStrike has. I think it's better certainly than having that reviews or being inferior to your competition, but I'm not sure necessarily that it makes much more of an additional affirmative case.

And that's -- so I think as a general practice it's absolutely something that people should do. I just don't know that you always necessarily get something important out of that. What do you think?

DS: Reminds of something Lester Goh said when we were talking about JD (JD), I think. And his argument was that management expertise or whatever doesn't merit anything. It's -- they're good at what they do, it shows up in their numbers. And so I think that's a little bit -- I think you are -- what I'm hearing you saying is don't overweight that. It's interesting, it's worth knowing but easy there tiger, if you start to think that this is the magic solution which I buy.

I think that makes sense. I think that -- and I think even the way I presented it a few minutes ago it's something you can be prone to oh, look at what great research I'm doing, because I'm going a little bit further than the filings, which is not the…

MT: Feel great, doesn't it, feels oh, you get that little, wooh. I'm such a good student. I'm such a good boy or girl, researching this stock, yeah.

DS: Endowment bias, would that be endowment bias maybe?

MT: Yeah, yeah, I think maybe it would further entrench your commitment bias which would be another reason, I'm not fully with Lester Goh's take on that. I think that you can find this confirming information that way. So I think it's more those outside sources are probably more interesting when they're not consistent with what you're already seeing in the financial statements.

So in cases where the company is looking really strong on all metrics, but you're seeing -- and I'm thinking of Valeant (BHC) or some of these other sort of high flyers that booked great growth for a while and then sort of imploded, you could see in the conversations with employees that analysts were doing with those companies and that people who were bearish on the stock were doing, that the information wasn’t matching up. And so I think mismatches between the information that’s available through third party or outside qualitative sources is much more interesting and much more valuable than alignment. So that’s my kind of -- I guess I agree with Lester but I would add on to that that I think if it disconfirms what you already believed then it’s much more important to pay attention to it. But I wouldn’t pile it on to what you already sort of know.

DS: Yeah, I think that’s right, yeah. I think that’s -- with him I think it was in the context of the real win whatever. I think it was meant as a positive and so you’re right. I think you’re right. I think that’s maybe the next step is to look at the hard quantitative stuff here because I think that’s what’s -- again what we struggle with normally, but what’s interesting here is we’re talking about a company that’s growing really fast and is not tiny. It’s not -- again to pick on Beyond Meat from earlier, Beyond Meat, I think their revenue is still fairly low at this point and people are just sort of describing the entire protein share in the market as a potential opportunity for them.

MT: The global market for protein. Demand is enormous, every living thing needs protein.

DS: I mean as far as I know, Beyond Meat are not doing pet food.

DS: I mean they could do pet food.

MT: They could do plant food. They could do mushroom food.

DS: So in this case we have a company that has $250,000 in revenue on a trailing 12 months basis as of 2019, all right January 2019. They have their fiscal year ends January 31st. They are a company that more than doubled their revenue, two consecutive years. They’re a company that their Q1 growth they sort of gave a range of 98% growth more or less year-over-year in this S1. I don’t think they’ve officially filed their numbers around Q1 but that’s the numbers they gave.

And they’re still at $250 million is the amount they are making right now and they claim that they have a market, a potential market that is a hundred times bigger. So they’re claiming about 1% market share. They say $25 billion to $30 billion is the total addressable market over the next couple of years. That’s roughly the range that they’ve presented in the S1. And so when you -- when we talk about for all our sort of questioning about what is the model, clearly there are some things working.

One of the things that’s interesting is that it appears that Dell which is one of the biggest enterprise companies there is right now for enterprise computing, Dell resells them, if I understood that correctly, but then which would seem like a huge plus, I guess. You’re getting somebody to sell you, you probably make a little less but you get that. But they also have the recurring revenue and they’re growing -- we will get in some of the more granular growth metrics but just at a high level, does that speak to you -- you expressed your doubts, does that speak to you at all, that there’s something here, or do you think this is just the hot hand or how do you sort of -- within the context, how do you, what do you make of that?

MT: Yeah, that’s tough. So if they’re $250 million in revenue and we extrapolate them out for a 100% growth then they get to $0.5 billion, then they get to $1 billion, then they get to $2 billion in revenue in 2021. Yeah so look I mean so then they get up to $2 billion in revenue. But right now they’re loss making. Their SG&A expense exceeds their gross profit. I was just looking at some other companies. So like I don’t know if I have a good point here, but I don’t know what your -- when the market starts to value this as a sort of a more standard company?

But I think the multiple is enormous and I'm not sure. So the total addressable market is a 100 times. But how much are they -- the key question is how much is the total addressable market growing. It’s probably growing quickly. Although I think cloud computing has not continued on its like completely vertical ramp lately but I would guess that its growing quite substantially and the need for it will continue to grow. So that’s good. And I guess 20% in four years or whatever those numbers shake out to be is quite good in terms of your total addressable market.

And it looks like they’re capturing share in the short term, off of not insignificant base. But how much of their market cap is $14 billion. So are they going to be -- what’s our end stake here? Are they going to be priced at three times sales when they have half the market? In which case they’re going to be -- they are going to triple in under whatever timeframe that is. That’s kind of how I want to try and understand this question of the fundamentals and the metrics.

My concern here is looking at the prospectus they mentioned that the information security market is highly fragmented and competitive and so I'm not convinced and we see sort of Palo Alto Networks (PANW) is still a loss making company today and that’s going back. They have had plenty of time to sort of figure that out, eight to ten years. So my question is, are we too focused on the top line? Is this actually a profitable space to be in, in the long run? Is it too competitive and do the helicopters ever stop flying over the house?

DS: The burden of living in the nation's capital.

MT: Yeah, it’s -- yeah, I think they come straight Northeast to go to Annapolis, they probably go to New York on. I don’t think I need a good point there but that’s where kind of where -- I'm kind of like I think we need a framework to understand what our case is on the other side. If we’re doing growth then you need to have a kind of exit valuation and a timeframe and see if that matches up with your needs as an investor for an assumed type of return given the risk.

And I didn’t really pick up on that from any of articles I read. I focused mostly on Marc and Bert. And from the prospectus I'm just a little skeptical. I think CrowdStrike has done a nice job of telling the market a story of having a competitive advantage. But I'm not sure that I'm seeing it. When I think of companies that have these sort of really strong cash generative characteristics, I think of companies that invest a lot more in research and development, a lot less in SG&A, relative to revenue, and I think of markets where there aren’t big players already in this space.

People like Symantec (SYMC), Palo Alto Networks, I think also consulting companies like General Dynamics (GD), there’s a lot of information security infrastructure, just in the market place in general. And so my chief concern about extrapolating the revenue growth going forward is that I see this is as a much more fragmented market and I don’t see the capture of giant portion of the total addressable market as necessarily a very likely outcome for CrowdStrike.

DS: So first I think you have a few points in there. That point about how much market shares they are going to have, the exit valuation you have, what’s the right peer group I think has come up. And then yeah, what's the moat and I like how you are sort of ignoring our earlier, not so technical discussion but then looking at R&D and so forth. So I think that’s all. I think those are good points to go for.

I wanted to quickly, some context here just for the listeners who aren’t following CrowdStrike and are stuck with us so far. CrowdStrike was originally set to open at $28 to $30 a share. They then priced to $34 a share. They traded up about 85% immediately and they’re up a little bit higher since that. So they’re about 70 to 75 right now. So more than double their higher opening price, so just like a market indicator, a pricing indicator.

And yeah -- and I think it’s just -- I think what’s interesting to me and I'm not a skeptical per se. obviously I don’t have the expertise to say whether or not just what we need to maintain such pretentious growth rates. But the fact is that there is a strong growth momentum. They are putting up the numbers so far and they’re building up recurring revenues traction for a number of reasons. I think their cash flow dynamics will allow them to have more success than it would seem at first from the income statement. It gives them a longer runway. Marc did cite their cash burn as sort of steady and obviously a lot the cash burn to come down a little bit.

What I think is interesting is thinking about whether the market is -- how they are -- what is their framework for getting to that value? I mean you just mentioned the idea of how do I get to where this is like sense in valuation? The question is whether there is just a pricing mechanism, they are just seeking the momentum in the early days and you beat earnings and whatever. Is that all there is at this stage or is there enough math going on to say something like okay if they hit $2 billion in sales, let’s say by -- we’re in fiscal ’20 right now so by fiscal ’22-’23.

And there are $50 billion EV, we’re now talking about 7.5 times forward sales two to three years out. You then start to figure out okay at some point they’re going to be scaling over the SG&A, they’re going to be scaling over their other expenses and they’re going to start generating cash or they’re going to see enough from the growth opportunity to continue to invest, which in theory will build up whatever moat they have. And I think that’s the sort of -- that’s the sort of framework that would appeal to us more because then you have something at the end that makes sense.

And I think this is -- I found -- I think I’ve talked before on the podcast I found at some point in the last couple of years, I think inspired by Jim Roumell, who is an author at Seeking Alpha and a well-known value investor. And he’ll often invest in these sort of tech companies with positive free cash flow not huge free cash flow, positive free cash flow and low EV/sales numbers even though they aren’t yet profitable on a GAAP base, they aren’t a classic value play. And one of them, I was proud of myself for I think I actually sort of identified this as that sort of stock before he ended up breaking up in Seeking Alpha. And I like an idiot, invested in it quite some time after that it didn't get all the move that he got.

But there was this company called Rapid Eye (RPD) which is also a security software company also involved in, I don’t remember exactly what the SIEM, S-I-E-M, I'm trying to remember what that stands for but security integrated endpoint management or something like that. So it had similar characteristics. CrowdStrike isn’t there, it’s a different story, it’s another category, it’s another sort of higher growth but also burning cash.

I don’t know why -- I'm rambling a little bit there but I just think -- and so I think it’s worth -- we have evidence that people are using this product and more people. So in terms of granular numbers we’re talking about a 147% retention is the number they report, meaning that, of the $100 that they earn from a given customer they earn a $147 the next year which -- like that’s a pretty -- it’s you know…

DS: There’s dollars on the line there. So I don’t know it just seems like there’s a lot of that. It’s one of those companies that you wish you could just ignore the multiple and just analyze the business, understand whether its sustainable before you get into the multiple and the multiple is crazy. But yeah, I don’t know. I guess that’s where I see cause for optimism.

MT: Yeah, here’s the kind of like extreme negative, like look at this. Okay you have an updated version of McAfee Antivirus. You have a piece of software that analyzes the feedback from this antivirus and then you have a team of information technology experts that you’re going to pay to continually analyze this information and provide feedback to your customers based on what you see. Is that it? Is that -- are you going to capture the entire market with those assets? Are you going to capture half of the market, a third of the market?

It’s a lot -- the company is priced at the value of half of its 2021 market. So I don’t know. I just, then you got into -- we talked about this before then you’re like well how does the market sort of price these things and then we’re not really doing fundamental analysis anymore. I get it and they’re showing real traction. They’ve got real customers and they have got customers who’re delighted with the products and they got customers who are asking them effectively how they can spend more to get CrowdStrike stuff?

I don’t necessarily know that the subscription model is something that’s particularly attractive. They’ve mentioned in the perspectives that customers can easily switch between product offerings and I think when you’re looking at high value information technology offerings vulnerabilities will prompt switching quite quickly. I'm not sure whether it matters, whether you have a SaaS model or another kind of model. You’ll eventually lose the recurring revenue one way or another.

The things that leap out at me on the negative side are the large SG&A expense relative. Obviously they’re in a growth ramp so but just relative to R&D that surprised me a great deal and it’s a potentially yellow flag when you’re looking at are there speculative companies that are trying to address the giant market.

This -- but you know the CEO is quite credible it seems. He was early on with McAfee and has founded and developed several companies at this point. He dresses extremely well, if you look at his Wikipedia page and the image with the article. Coordinated plaids, across shirt pants and suit jacket with cool pocketsquares, all blue.

DS: A little bit over plaided, I think.

MT: I think so then -- okay, so I sort of made that point. Here’s the final point. I think there is some air in this. I think there’s just air in the kind of presentation and it’s smacks very much of the kind of entrepreneurs spin on the company, when presenting to perspective investors. And I can’t kind of get that taste out of my mouth. They have that great, we don’t have a mission statement. We are on a mission, which is just like the wonderfully zap it Silicon Valley type of hype phrase like, okay you don’t have a mission statement but you’re on a mission or how do you, what’s your plan? Like what is your mission?

It’s like this beautifully self-aggrandizing yet self-contradictory type of logic that reminds me of guys with a little microphone things standing in front of a giant projector. And I think when I look at the sort of the grabs from the perspectives of the business model and land and expense strategy, get the easily downloadable and usable and non-interfering software and then upsell to these other things, those are all sound great and there’s evidence that is working. I just wonder if I mean whether that’s also reflected in the share price. There’s something kind of airy about this, which is a gut feeling but it’s what I’ve got.

DS: I’d like to also propose another piece of context here which is that their competitors are awful, as companies, like their competitors are McAfee, Symantec, and Blackberry (BB), which in their third iteration and even and even Carbon Black who sounds like a newer hot tech company but…

MT: Yeah, it’s likely that I'm underestimating just how right for disruption this market is.

DS: Because cyber security is still such a -- whether it's -- think of headlines like the democratics getting after wannacry or whatever else, like I think that I'm not claiming to about the only knowledge I'm presenting here is my computer programming father’s opinion that McAfee is terrible. That’s like the only…

MT: Can we get your father on the podcast?

DS: I don't know if he’ll be available, he's retired. He's retired, but…

MT: Okay, okay. Respect is -- respect the man.

DS: You have McAfee? That’s terrible, that is trash. Get rid of it. And so that’s my experience with…

MT: Get rid of it.

DS: What are you doing?! He’s much more vulgar, but we have to keep our clean rating on iTunes. So I don’t want to…

MT: Oh yeah, that’s really important.

DS: We got to keep our security there. But so that’s sort of -- I think it’s worth -- I think we don’t know obviously right. We don’t have the expertise here to grade these companies and to truly understand whether or not they are crowdsourced, I think you’re right, it is airy, and there is…

MT: We can’t judge their IP, like we don’t know what their IP is, we don’t know how valuable it is. We can talk to people who would know that but we don’t know. So yeah, we kind of have to leave that aside, and keep -- but that’s what I'm struggling with at the same time.

DS: And you’re right to say -- it’s not like we should throw it out. We -- for now we can’t judge it effectively, but it’s still is quite important. So we did need to -- for investors looking at it we do need to get some comfort and that’s where Bert Hochfeld has a decent amount of experience in technological space. Marc is quite smart about these companies, follows them quite closely. He brought up Zscalar (ZS) a lot with the other company and pointed out that there is a different security model but that’s also one of the higher IPOs of recent memory and doing really well.

And again it’s not that if a company is hot than another company has to be hot like, that’s when bubbles happen, but yeah, for sure you are understanding this is a blindspot.

MT: Here’s what I think is maybe like one takeaway I think I can get from this is that CrowdStrike is not the same as Beyond Meat. Like Beyond Meat is kind of just clearly in my opinion at least, priced to the sky and it’s overvalued. Just sort of it’s sort of impossible for me to come up with another conclusion when I look at that company.

CrowdStrike is not in the same caliber. You can be cautious and skeptical but you do have a lot more. It’s not -- it’s just not the same thing. They have technology, they have intellectual property, they have these customer dynamics that are very attractive.

So the point that I'm arriving at is that we’re kind of talking lately about how the IPO window is just like so wide open and now is a great time to sell stock in the company just because you can get these really nice rich valuations out of the market. It doesn’t mean that all of the companies going public are bad and it’s probably really worthwhile to come to these come to solid conclusions about sort of separating which one is which.

DS: As you say that I looked at the Beyond Meat co-page in the news is, Beyond Meat down 1.8% after Taco Bell (YUM) snub and then Del Taco and Beyond Meat in burrito pact, which is just the saddest pair, I could think like. But we’re not in Taco Bell but we are in Del Taco (TACO). It’s like really -- is that the great story here?

MT: It’s supreme -- it's the slight step up, I think, I don’t know. I don’t know where Del Taco is relative to Taco Bell. I'm only a Chipotle (CMG) guy due to my discerning taste.

DS: I recall our Chipotle discussions. I still haven’t tried Chipotle. Yeah I think you’ve got at it. I think that’s where -- CrowdStrike isn’t just a crazy IPO with a lot hype. It’s not a cannabis stock at the wrong stage or it’s not a big coin oriented or whatever. It's just clearly a real business. It appears to be a business that their customers like, based on these soft quantitative stuff that we talked about with the Gartner reviews or whatever else but also based on the net retention number that they used and whatever else.

So there’s something here I'm trying to understand what -- like it is crazily valued and we would I would never say otherwise, but I do think it’s interesting to try to think how does the market look at a company like that because I think there’s contingency and I think Marc made a reference, if not in this article then in the article he did on Zscaler which I may have looked at as well. He reference the -- IPOs sometimes work. You could buy Google (GOOG) at IPO, but I think that in hindsight like okay Google everybody even in 2004 whatever it was still the destination and you could see that it was an important channel, Facebook (FB) too.

I was sort of a newer investor there but yeah, I do remember thinking like everybody uses Facebook and yeah it’s crazily expensive but it could be a good price eventually and I actually did hit a really attractive price even at ex-ante in that first year. And the turmoil before it started on its growth stream. But there’s a lot of attractive companies in more niche sectors, or in smaller sectors that have these really interesting profiles that don’t get the same sort of attention and that are just kind of yeah, I don’t know. I think it’s just interesting to try to understand what are people smarter than us doing when they’re thinking about the stocks and how are they approaching them because I think it carries over to other things.

MT: I agree. That’s why we have Marc in our world. I think yeah having a larger tool kit is potentially valuable and it’s something that we should also just know as sort of from a more broad perspective of I hate to use the word journalist to describe us because it really seems misapplied but as people are trying to understand the world, it’s good for us to explore these business models and these businesses opportunities and to use. Companies that are with difference, that are not at the value investment stage, that are not at the mature stage and figure out what that means and what the market is thinking and what smart people are thinking.

So my discussed and general distaste for Silicon Valley type of positioning, marketing, branding had probably got in the way of my -- of more sober analysis here. And so that’s something for me to think about next time.

DS: Listeners, Mike's upset because we went out to Silicon Valley a couple of weeks ago and tried to pitch funding for our podcast, and we just didn't quite lock it down so it's just that.

MT: No, we were close. Well the terms were just too onerous.

DS: They wouldn’t give us the full voting control we wanted, that was really the issue.

MT: That’s right, the dual-shared class, like “no way”.

DS: Of all things for them to grow a spine over, a podcast. No, yeah.

MT: None of that’s true.

DS: Yeah, none of that’s true. but yeah, I think we got to a good place. I think it’s -- I mean it’s none of these companies we looked at can be a Cars.com where there’s a value story or a value trap. These growth stories are -- and we are just in this like you said -- this wave of IPOs that I don’t really remember the last -- like I don’t know that we’ve had quite a -- I guess when Facebook came public, and then there was a sort of a social media wave to some degree? We got Twitter (TWTR), Zynga (ZNGA), Snap (SNAP) eventually was sort of the tail end and that pushed.

MT: We should do Zynga that will be great. I love Zynga. Yeah but we’re in a different moment, it’s kind of fun to be in a different moment.

DS: Yeah, and I was -- just it was interesting I am working on some interview questions for some of our Marketplace Authors and I was just -- I was like, so we did this and we did a round of interviews at the end of the year when there was doubts about the trade war or doubts about the Fed stance, doubts about the economic cycle and they were priced in to some degree.

And six months later, the question sort of implies, I think there’s still these doubts and yet we’re in this IPO wave, we’ve at all-time highs. I guess just it's interesting how things are. The market is never boring I think or rarely boring, no, as long as CrowdStrike can keep growing and keep us secure we can hope that there’s a story here.

MT: Keep the hope for the story alive, Daniel.

DS: Shout out to that, you got to give credit to the CEO for wearing that suit in any professional setting.

MT: Shout to the CEO, yeah I think that’s the biggest victory so far in his career is pulling off that suit, probably second is this IPO.

DS: I mean we’re right on the heels of the NBA draft which is known for the colorful…

DT: That's for sure.

DS: I think we should end there.

DS: All right, good stuff, Mike. See you later.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Neither Mike nor I have any positions in any stocks mentioned. Nothing on this podcast should be taken with as investing advice.

Source: Seekingalpha.com

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