CrowdStrike is set to reveal its latest financial results on Wednesday, offering the first glimpse into the impact of the July 19 cyber outage that crippled the Microsoft Windows operating system and disrupted internet services worldwide. Investors are particularly eager to assess how the incident, caused by a faulty software update from CrowdStrike, has affected the company's reputation and whether it has led to a loss of market share to competitors.
The outage, which impacted nearly 8.5 million Windows devices, had far-reaching consequences. It grounded flights, knocked broadcasters off-air, and disrupted sectors ranging from banking to healthcare. The incident also sparked several lawsuits against CrowdStrike, including one from Delta Air Lines.
Analysts and investors are concerned about the potential long-term damage to CrowdStrike’s business. Bernstein analysts expressed worries that the incident could deter new customers, with executives likely to question whether CrowdStrike can prevent similar outages in the future. This doubt could weaken CrowdStrike’s negotiating power with clients and provide an opening for rivals to gain market share.
Rival companies, such as Palo Alto Networks, have reportedly capitalized on the situation. Palo Alto Networks CEO Nikesh Arora mentioned on a recent earnings call that customers have been reevaluating their cybersecurity options since the outage. Analysts noted that competitors have offered increased discounts to attract disillusioned customers, potentially eroding CrowdStrike’s market share in the short term.
The financial impact is already evident, with over half of the 45 brokerages covering CrowdStrike lowering their annual revenue estimates. Many expect the company to revise its revenue forecast downward from the current outlook of between $3.98 billion and $4.01 billion. Since the outage, CrowdStrike's shares have dropped by approximately 20%, erasing about $20 billion from its market value. Meanwhile, competitors like SentinelOne and Palo Alto Networks have seen gains of 25.4% and 8.3%, respectively.
Despite these challenges, CrowdStrike’s stock remains up over 5% for the year, reflecting its strong position in an industry where customers increasingly rely on large providers offering comprehensive cybersecurity solutions. Analysts predict a 31% increase in revenue for the quarter ending in July, indicating that the company may weather this storm.
Some experts suggest that the damage may be short-lived. Bernstein analysts highlighted the high costs and risks associated with switching cybersecurity providers, suggesting that most customers may choose to stick with CrowdStrike despite the outage. Additionally, CrowdStrike's swift response in helping customers restore their systems could help mitigate the fallout and preserve existing client relationships.
However, with rivals like Palo Alto Networks poised to seize any lost business, CrowdStrike will need to work hard to regain trust. As part of these efforts, CrowdStrike will participate in a Microsoft-led summit in September focused on enhancing cybersecurity systems.
In the coming weeks, investors will be closely watching CrowdStrike’s strategies for recovery and its ability to reassure both existing and potential customers.
