CrowdStrike’s Comeback Hits an Air Pocket
I just spent a relaxing week at the beach that started in turmoil: Mine was one of more than 3,500 Delta flights canceled as a result of a CrowdStrike-sparked outage that also shut down hospital, bank and courthouse systems.
While Delta’s still on the hot seat with transportation regulators, Wall Street seems to have largely forgiven CrowdStrike—though the stock’s after-hours drop Monday show how skittish investors can be.
Two reports Monday predicted that CrowdStrike would be able to absorb the financial damage and bad rap from a July 19 software update that backfired. The stock rose 1% in regular trading, a contrast with more than 1% losses in cybersecurity rivals SentinelOne and Palo Alto Networks.
J.P. Morgan’s Brian Essex shaved 13% from his past yearly estimates of net annual recurring revenue generated by CrowdStrike’s software sales and reduced his estimates on cash flow. But Essex said he viewed the incident as a “black swan event” and thought the company’s quick responses will support “the business and the brand longer term.”
Morgan Stanley’s Hamza Fodderwala was even more optimistic, estimating a 3.3% hit to CrowdStrike’s net new ARR as some customers pause on new deals.
Notably, both analysts aren’t predicting a big loss from irate customers asking for compensation, in part because many likely have insurance against these risks. J.P. Morgan guessed CrowdStrike might have to put aside $500 million for potential legal action and related costs. As a bullish sign, noted Morgan Stanley, CrowdStrike doesn’t appear to have granted concessions or credits to its customers.
CrowdStrike isn’t out of the woods yet. The stock lost 6% in after-hours trading after CNBC reported Delta hired the law firm of Boies Schiller Flexner, presumably presaging a lawsuit. Such losses, if they roll into Tuesday’s session, would add to the stock’s 25% decline since revealing the outage.
And two events—Microsoft earnings on Tuesday and an expected Congressional hearing on the outage—could introduce new details that cast CrowdStrike’s role in a worse light.
CrowdStrike investors could win if Wall Street’s rosy projections on growth are right. But they’re likely in for a bumpy ride.