CrowdStrike (NASDAQ: CRWD) has seen its value decline by over 25% since a failed update on Friday, July 19 2024. Following the incident that crippled some of the biggest businesses in the world, there have been questions asked regarding CrowdStrike’s future.
CrowdStrike Meltdown
According to an incident report from CrowdStrike, on Friday, July 19, 2024, it released an update for its cloud-based Falcon platform. Nearly one and a half hours later, a defect was detected in the update and rolled back.
The Aftermath
CrowdStrike’s failed update caused hospitals, airports, and banks to go down. It has been dubbed the most significant IT outage of the 21st century. For investors, the main question is what the reputational damage to the stock has been.
Thus far, the reputational damage is extensive. According to recent updates, 97% of the affected systems were back online. It led to delays at medical facilities, caused flight delays, and knocked out some emergency services.
For most It security experts, this incident was always envisioned as being caused by state actors. It is worrying that it would happen because of one of the leading security software providers. Once the current issue is resolved, management must conduct a full investigation.
Congress has already called for the CrowdStrike CEO to testify. All these things will bring negative publicity to CrowdStrike, impacting its ability to deliver positive returns for shareholders.
Financial Impact Of CrowdStrike Incident
The CrowdStrike incident is quite serious from a financial standpoint. According to a report by Parametrix, the financial loss to Fortune 500 companies is over $5.4 billion. The report notes that the insurance payouts will cover around $540 million to $1.08 billion.
These are quantifiable losses and do not include things like long-term reputational losses. Some companies will launch lawsuits against CrowdStrike, and depending on the outcome of an investigation, it could lead to potentially major financial losses.
Previously, CrowdStrike had been forecast to have a CAGR of 28.2% in the next five years. However, that seems less likely after the incident. CrowdStrike may be forced to pause growth efforts as cash flow and profits go towards legal fees.
Additionally, it could see the company losing its reputation amongst some long-time customers. In the long-term, it will lead to slowed revenue growth, as competitors will rise to take some of its market share.
Be Cautious Of CRWD Stock
In summary, CrowdStrike is no longer as lucrative as it was. While CRWD stock has lost over 20% of its value since the July 19 incident, its valuation is still relatively high. It has a trailing P/E of 476.17 and a forward P/E of 63.69. If revenue drops in upcoming quarters, the company will find it hard to justify its continued high valuation.
The stock has dipped 35% following the incident over the past month. Meanwhile, it is up 58.46% in the past twelve months at its current price of $256.16 as of Monday, July 29. 2024. The institutional interest remains quite high at 75.50%, while the short interest has only increased slightly over the past month.
Should You Invest In CrowdStrike?
While the incident should have never occurred, management reacted quickly. They also communicated clearly and reassured customers that it was not a security attack. On that front, CrowdStrike has its reputation secured.
However, it has a lot of work to do before it can regain investors’ confidence. In the short term, a wait-and-see approach would be prudent as the stock bottoms. After that, performance will be determined by its top and bottom line.
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