The Bottom Line:
- Crowd Strike’s stock has experienced a significant decline, down 10.6% today, following a global outage incident that impacted various sectors.
- The outage was caused by a sensor configuration update, affecting over 8.5 million devices and leading to outages in industries such as airlines, healthcare, and financial institutions.
- Crowd Strike and Microsoft have worked together to resolve the issue, and the company has provided transparency and updates through their support portal.
- Analysts have mixed opinions on Crowd Strike, with some seeing the short-term pain as priced in and room for upside, while others expect more pressure on the stock due to potential lawsuits and the upcoming earnings report.
- The author believes Crowd Strike is a long-term buy, with a cost basis closer to $100 per share, and sees potential support levels around $200 or less.
CrowdStrike’s Recent Stock Decline and Global Outage Incident
CrowdStrike’s Stock Plummets Amidst Global Outage Fallout
CrowdStrike’s stock has experienced a significant decline, falling 10.6% in a single day, despite recent endorsements from various analysts. Jim Cramer, a prominent figure in the financial world, had previously called the bottom on CrowdStrike’s stock after the global outage fallout. However, the stock continued to tumble, reaching the predicted level of $250 or less, largely due to the impact on Delta Airlines.
Delta is seeking compensation from CrowdStrike and Microsoft, as it handles over 176,000 refund or reimbursement requests, with almost 7,000 flights canceled. The global outage, which occurred on July 19th, was caused by a sensor configuration update released by CrowdStrike. The update triggered a logic error that led to system crashes on impacted machines, primarily affecting Windows 10 and later versions.
The Extent of the Outage and Its Consequences
The immediate impact of the outage was substantial, with 8.5 million devices affected across various sectors, including airlines, healthcare, and financial institutions. Delta Airlines was among the most severely impacted, with the outage costing the company an estimated $350 to $500 million. The total loss for Fortune 500 companies, excluding Microsoft, is estimated to be around $5.4 billion.
CrowdStrike and Microsoft worked together from July 19th to 22nd to provide steps to resolve the issue. CrowdStrike’s CEO, George Kurtz, issued an apology and committed to providing full transparency on the incident and the steps taken to prevent future occurrences. It is important to note that this was not a breach but rather an update that impacted Microsoft machines.
Potential Legal Implications and Market Sentiment
While CrowdStrike’s standard contract language states that the company is not liable for indirect, special, incidental, consequential, or punitive damages, larger customers like Delta may have negotiated different limitations or contract language. As a result, there is a possibility of concessions, write-offs, and even lawsuits in the coming quarters.
The sentiment surrounding CrowdStrike remains negative, with the expectation of more lawsuits and the potential for further stock price pressure. The upcoming earnings report at the end of August will be critical, as analysts are likely to grill CrowdStrike about the incident and its implications. The stock, which had previously risen from under $100 to nearly $400 per share, has seen a significant correction, trading at around 13.5 times EV/TTM revenue.
Resolving the Sensor Configuration Update Issue
Resolving the Sensor Configuration Update Issue
CrowdStrike and Microsoft collaborated from July 19th to 22nd to develop a solution for the systems affected by the faulty sensor configuration update. The companies provided step-by-step instructions to resolve the issue, which primarily impacted Windows 10 and later versions. CrowdStrike’s CEO, George Kurtz, issued a public apology and committed to full transparency regarding the incident and the preventive measures being implemented to avoid similar occurrences in the future.
Potential Financial Repercussions and Contract Limitations
Although CrowdStrike’s standard contract language states that the company is not liable for various types of damages, the specific terms may vary for larger customers like Delta Airlines. These customers may have negotiated different limitations or contract language, which could lead to concessions, write-offs, or even lawsuits in the coming quarters. The incident is estimated to have caused a total loss of $5.4 billion for Fortune 500 companies, excluding Microsoft, with Delta Airlines alone seeking compensation for an estimated $350 to $500 million in losses.
Market Reaction and Future Outlook
CrowdStrike’s stock has experienced significant volatility in the wake of the global outage, with the sentiment remaining largely negative. The company’s upcoming earnings report at the end of August will be closely watched, as analysts are expected to question CrowdStrike about the incident and its implications. Despite the current challenges, some investors remain bullish on CrowdStrike’s long-term prospects, citing its position as a best-of-breed endpoint security provider and its strong recurring revenue model. However, the stock may face further pressure in the near term as the full extent of the financial and legal repercussions becomes clearer.
Analyst Perspectives on CrowdStrike’s Future Outlook
CrowdStrike’s Position in the Endpoint Security Market
Despite the recent challenges faced by CrowdStrike, the company remains a leader in the endpoint security market. According to the Gartner Magic Quadrant, CrowdStrike is positioned in the top right corner, indicating its strong ability to execute and completeness of vision. Microsoft follows closely behind, while SentinelOne focuses more on the small and midsize business (SMB) segment. Although SentinelOne is growing and expanding its presence among larger customers, the CEO admitted that competing with the likes of CrowdStrike and Microsoft can be challenging.
Potential Impact on Competitors and Market Share
While the global outage may present an opportunity for competitors like SentinelOne to win some deals, the impact may not be as significant as the stock price suggests. SentinelOne could benefit from one or two big deals, which would move the needle for the company. However, CrowdStrike still maintains its edge, particularly when it comes to larger customers. The community portfolio mentioned in the context owns both CrowdStrike and SentinelOne, indicating a diversified approach to investing in the endpoint security market.
Factors Influencing CrowdStrike’s Stock Price and Valuation
CrowdStrike’s stock has experienced a significant correction since its peak, falling from nearly $400 per share to around $226 as of July 30th, 2024. The company’s valuation is not based on traditional metrics like the price-to-earnings (P/E) ratio but rather on cloud SaaS metrics such as EV/TTM revenue, Rule of 40, net retention rates, and recurring revenue. Currently, CrowdStrike is trading at approximately 13.5 times EV/TTM revenue, down from over 20 times not long ago. While some investors believe that CrowdStrike becomes attractive at $150 or less, others see potential entry points at various levels, such as $213 (trend line support), $198 to $200, and $182.50.
Potential Lawsuits and Upcoming Earnings Report Implications
Potential Lawsuits and Legal Implications
The global outage caused by CrowdStrike’s sensor configuration update has led to significant financial losses for affected companies, with Delta Airlines alone seeking compensation for an estimated $350 to $500 million in losses. Although CrowdStrike’s standard contract language limits the company’s liability for various types of damages, larger customers like Delta may have negotiated different terms. As a result, CrowdStrike may face concessions, write-offs, or even lawsuits in the coming quarters. The full extent of the legal repercussions remains to be seen, but it is likely that the company will continue to face legal challenges as more affected customers come forward.
Upcoming Earnings Report and Market Sentiment
CrowdStrike’s upcoming earnings report at the end of August will be a critical moment for the company, as analysts and investors seek clarity on the financial impact of the global outage and the steps being taken to prevent similar incidents in the future. The market sentiment surrounding CrowdStrike remains largely negative, with the stock experiencing significant volatility in the wake of the incident. Despite this, some investors remain bullish on the company’s long-term prospects, citing its strong position in the endpoint security market and its recurring revenue model. However, the stock may face further pressure in the near term as the full extent of the financial and legal repercussions becomes clearer.
Long-Term Outlook and Investor Considerations
Despite the current challenges, CrowdStrike remains a leader in the endpoint security market, with a strong track record of growth and innovation. The company’s recurring revenue model and best-of-breed technology position it well for long-term success, even as it navigates the fallout from the global outage. Investors considering CrowdStrike should weigh the potential risks and rewards carefully, taking into account the company’s valuation, market position, and the potential for further legal and financial repercussions. While some investors may see the current stock price as an attractive entry point, others may choose to wait for further clarity on the long-term impact of the incident before making a decision.
Long-Term Bullish Outlook and Potential Support Levels
Potential Support Levels and Entry Points
Despite the recent pressure on CrowdStrike’s stock, some investors remain optimistic about the company’s long-term prospects. The stock has experienced a significant correction from its all-time high of nearly $400 per share, presenting potential entry points for investors looking to capitalize on the company’s growth potential. Key support levels to watch include the red trend line at approximately $213, the $198 to $200 range, and the $182.50 level, which represents the lowest expected price based on current technical analysis.
Bullish Outlook and Cost Basis Considerations
For investors with a long-term bullish outlook on CrowdStrike, the current stock price may present an attractive opportunity to initiate or add to their positions. However, it is essential to consider one’s cost basis and risk tolerance when making investment decisions. Some investors, particularly those with a lower cost basis around $100 per share, may be less concerned about the recent price action and more focused on the company’s long-term growth potential. As with any investment, it is crucial to conduct thorough due diligence and consider the potential risks and rewards before making a decision.
Patience and Monitoring Market Sentiment
Given the ongoing challenges faced by CrowdStrike, including potential legal repercussions and negative market sentiment, investors may need to exercise patience as the situation unfolds. It is likely that the stock will experience further volatility in the near term, particularly surrounding the upcoming earnings report and any new developments related to the global outage. By closely monitoring market sentiment and the company’s response to these challenges, investors can make informed decisions about when to enter or adjust their positions in CrowdStrike. Ultimately, the long-term success of the company will depend on its ability to maintain its leadership position in the endpoint security market and effectively manage the fallout from the recent incident.
