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Tisdag Jul 23 2024 13:47
4 min
CrowdStrike stock appeared to even out on Tuesday after plunging over the previous days due to company’s faulty software update disrupting global technology. At least two analysts downgraded the cybersecurity stock following the outage.
A client note titled “Need Time to Let the Dust Settle” from John DiFucci of Guggenheim said that “there likely will be negative effects on [the company’s] business due to the disorder across the world that CrowdStrike has caused, even if temporary”.
DiFucci downgraded CrowdStrike stock from buy to neutral.
“The restoration of its reputation may take more time and will likely affect new business signings at least in the near-term,” DiFucci continued. While he believed that the reputation-related fallout was unlikely to significantly impact renewals in the near term, he was concerned that the company could "at least" experience delays in securing new deals.
CrowdStrike stock dropped another 13% on Monday afternoon, adding to an 11% decline on Friday as the market absorbed the ongoing effects of the incident. Delta Air Lines, for example, saw flight cancellations that extended into Monday due to the disruptions. On Tuesday, however, CrowdStrike stock appears to have stabilized, trading up close to 2% in premarket hours and gaining over 1.7% in early trading.
CrowdStrike on Friday blamed a content update for far-reaching disruptions to Windows-based systems.
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BTIG’s Gray Powell also downgraded CrowdStrike, noting that “the outage may have an impact on new customer wins and create deal delays.”
After speaking with five senior security executives, he received more negative feedback than expected. “While it is not stemming from a security incident (a good thing) [CrowdStrike] committed the ‘cardinal sin’ for any security vendor and negatively impacted the revenue generation of its customers,” Powell continued.
He suggested that current customers might seek larger discounts on renewals and request credits for lost business. Powell lowered his rating on CrowdStrike stock to neutral.
DiFucci pointed out that even before the incident, there was some risk to CrowdStrike’s January-quarter consensus expectations, particularly regarding annual recurring revenue. Despite Friday’s 11% CrowdStrike stock selloff, he noted that CRWD was still the most expensive share within his software coverage based on enterprise value to recurring revenue. The analyst wrote:
“We still have the utmost respect for the leadership team at CrowdStrike and believe that the company will eventually become even stronger as a result of this incident. However, we find it difficult to tell investors that they need to buy [CrowdStrike] right now.”
Some analysts last week suggested buying CrowdStrike stock during its weakness.
CrowdStrike stated in a Sunday tweet that it was working to restore all systems as soon as possible:
“Of the approximately 8.5 million Windows devices that were impacted, a significant number are back online and operational.”
DiFucci also raised broader concerns for the software industry, suggesting potential negative fallout for consumption-based software companies like Snowflake Inc. and Datadog Inc. due to the business disruptions on Friday.
He questioned whether the incident might cause companies and investors to reconsider the risks associated with artificial intelligence, asking, “What about the risk that an AI model simply makes a mistake that has far-reaching implications?”
Taking into account the recent slide, CrowdStrike stock is up 3.4% year-to-date as of the time of writing on July 23. The S&P 500 index, where CRWD is a constitutent, is up close to 17% year-to-date.
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