Key Points
- A CrowdStrike software update caused a massive cyber outage affecting 8.5 million Windows devices, leading to significant disruptions.
- The incident has resulted in several lawsuits, including one from Delta Air Lines.
- Concerns over potential market share loss as competitors like Palo Alto Networks capitalize on the situation.
- Analysts have cut CrowdStrike’s annual revenue estimates, with potential downward revisions expected.
CrowdStrike (CRWD.O) is under intense scrutiny as it reports its quarterly results on Wednesday, following a major global cyber outage linked to the company last month. The outage, caused by a faulty software update from CrowdStrike, severely disrupted internet services worldwide, causing flight cancellations, broadcasting interruptions, and significant impacts on sectors like banking and healthcare.
The incident, which affected nearly 8.5 million Windows devices, has sparked several lawsuits against CrowdStrike, including one from Delta Air Lines (DAL.N). It has raised concerns among investors about the potential damage to the cybersecurity firm’s reputation and whether it could lose market share to rivals.
Bernstein analysts are concerned that the outage may deter new customers from choosing CrowdStrike. “Executives may want to delve deeper into why CrowdStrike remains the right choice and how they will prevent future outages,” the analysts noted.
The outage’s aftermath could also weaken CrowdStrike’s position in negotiating new deals. Competitors like Palo Alto Networks (PANW.O) are reportedly increasing discounts to lure customers away. Palo Alto Networks’ CEO, Nikesh Arora, mentioned that many customers have reevaluated their cybersecurity options since the incident.
As a result, more than half of the 45 brokerages covering CrowdStrike have reduced their annual revenue estimates, with many expecting a downward revision of its current forecast of $3.98 billion to $4.01 billion. The company’s shares have declined by about 20% since the outage, erasing approximately $20 billion from its market value. Meanwhile, competitors like SentinelOne and Palo Alto Networks have seen their shares rise by 25.4% and 8.3%, respectively.
Despite these challenges, CrowdStrike’s stock is still up more than 5% for the year, bolstered by its strong position in the cybersecurity industry. Analysts suggest that while the impact of the outage may be significant, it is likely to be short-term. The company’s efforts to assist clients in recovering from the outage have helped maintain its reputation among existing customers.
Looking ahead, CrowdStrike must work hard to restore trust and fend off competition. The company is expected to participate in an upcoming summit hosted by Microsoft in September aimed at improving cybersecurity systems.
