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CrowdStrike (CRWD) Down on Faulty Update: Should You Buy It Now?
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CrowdStrike Holdings Inc. (CRWD - Free Report) shares faced a dramatic 11% plunge last Friday, a direct consequence of a faulty update to the company’s cloud-based cybersecurity platform, Falcon.
The mistake in the Falcon update led to a global IT outage, impacting banks, airports, hospitals, retailers, various businesses and government agencies. This causes significant disruption and economic losses worldwide.
The incident has raised questions about CrowdStrike’s reliability and long-term prospects, leading to a debate on whether this dip presents a buying opportunity or a signal to stay away.
The chaos was triggered by a defect in a single content update for Microsoft Corporation’s (MSFT - Free Report) Windows hosts within CrowdStrike's Falcon platform. The update caused system malfunctions for about 8.5 million or less than 1% of the total Windows devices, leading to severe disruptions for clients globally.
Initially, Microsoft was suspected to be at fault since the outage only affected Windows systems. However, Microsoft clarified that it was working with CrowdStrike to resolve the problem. CrowdStrike CEO George Kurtz acknowledged the issue, too, and confirmed that a fix had been deployed.
This incident has highlighted significant vulnerabilities within CrowdStrike's operational processes, casting a shadow over its reputation. While the company's swift acknowledgment and rectification efforts were commendable, the scale of the impact has left a lasting impression on clients and investors alike.
Why Did an Update Error Cause So Much Chaos?
CrowdStrike's Falcon platform is designed as a cloud-native endpoint security solution, eliminating the need for on-site hardware. This model offers several advantages, including ease of installation, scalability and simplified updates. Falcon’s architecture allows CrowdStrike to secure clients with recurring subscriptions and expand its service offerings through additional cloud-based modules.
These strengths have been boosting CrowdStrike’s overall financial performance and have established it as one of the leading endpoint security solution providers. The company’s revenues have grown at a CAGR of approximately 52% over the past three fiscal years, from $874 million in fiscal 2021 to $3.06 billion in fiscal 2024. Similarly, its non-GAAP EPS increased more than elevenfold, from 27 cents in fiscal 2021 to $3.09 per share.
The incident has exposed the risks inherent in cloud-native platforms. While they offer numerous benefits, a single point of failure can have catastrophic consequences. The outage has raised concerns about the robustness of CrowdStrike's quality control and internal testing procedures, suggesting a need for more stringent safeguards to prevent similar incidents in the future.
Market Share Loss and Competitor Advantage
The recent outage has not only damaged CrowdStrike's reputation but also opened the door for competitors to gain market share. Palo Alto Networks, Inc. (PANW - Free Report) and Fortinet, Inc. (FTNT - Free Report) , among others, stand to benefit from any loss of confidence in CrowdStrike. The cybersecurity market is fiercely competitive, and clients dissatisfied with CrowdStrike's recent performance may consider alternative solutions.
Palo Alto Networks, with its diversified mix of on-site and cloud-based services, could attract clients seeking more reliable cybersecurity solutions. Fortinet’s rich experience in the security space and continued delivery of mission-critical solutions might attract customers who are looking to switch to another platform following the aftermath of CrowdStrike’s IT outage.
Microsoft, which has been steadily expanding its cloud-based cybersecurity offerings, may also see increased interest as organizations reassess their cybersecurity strategies. The high-profile nature of CrowdStrike's failure has amplified the visibility of its competitors, potentially accelerating their market share gains.
Lofty Valuations
CrowdStrike’s lofty valuation raises concerns over the stock’s upside potential. The stock trades at high multiples relative to its earnings and revenues. Currently, CrowdStrike's price-to-earnings (P/E) and price-to-sales (P/S) ratios are significantly above the industry average.
CRWD stock is currently trading at 69.41X forward 12-month earnings compared with 32.33X for the Zacks Internet – Software industry. Similarly, it trades at 16.56X forward 12-month sales compared with the industry’s 2.47X.
These elevated valuations indicate that a lot of future growth is already priced into the stock, leaving it vulnerable to any negative news or earnings misses.
Final Thoughts
Given the recent events, investors should exercise caution with CrowdStrike stock. The faulty Falcon update has exposed critical vulnerabilities in the company's operations, raising questions about its ability to maintain client trust and market dominance. The incident's impact on CrowdStrike's long-term growth prospects cannot be underestimated, and the company may face increased scrutiny and pressure to improve its quality control measures. Moreover, CrowdStrike's high valuation multiples add another layer of risk.
In light of the recent outage and the competitive landscape, it is prudent for investors to stay away from CrowdStrike for now. The combination of operational risks and high valuation makes this Zacks Rank #5 (Strong Sell) stock a risky proposition.
Image: Shutterstock
CrowdStrike (CRWD) Down on Faulty Update: Should You Buy It Now?
CrowdStrike Holdings Inc. (CRWD - Free Report) shares faced a dramatic 11% plunge last Friday, a direct consequence of a faulty update to the company’s cloud-based cybersecurity platform, Falcon.
The mistake in the Falcon update led to a global IT outage, impacting banks, airports, hospitals, retailers, various businesses and government agencies. This causes significant disruption and economic losses worldwide.
The incident has raised questions about CrowdStrike’s reliability and long-term prospects, leading to a debate on whether this dip presents a buying opportunity or a signal to stay away.
CrowdStrike Price and Consensus
CrowdStrike price-consensus-chart | CrowdStrike Quote
What Caused the Global IT Outage?
The chaos was triggered by a defect in a single content update for Microsoft Corporation’s (MSFT - Free Report) Windows hosts within CrowdStrike's Falcon platform. The update caused system malfunctions for about 8.5 million or less than 1% of the total Windows devices, leading to severe disruptions for clients globally.
Initially, Microsoft was suspected to be at fault since the outage only affected Windows systems. However, Microsoft clarified that it was working with CrowdStrike to resolve the problem. CrowdStrike CEO George Kurtz acknowledged the issue, too, and confirmed that a fix had been deployed.
This incident has highlighted significant vulnerabilities within CrowdStrike's operational processes, casting a shadow over its reputation. While the company's swift acknowledgment and rectification efforts were commendable, the scale of the impact has left a lasting impression on clients and investors alike.
Why Did an Update Error Cause So Much Chaos?
CrowdStrike's Falcon platform is designed as a cloud-native endpoint security solution, eliminating the need for on-site hardware. This model offers several advantages, including ease of installation, scalability and simplified updates. Falcon’s architecture allows CrowdStrike to secure clients with recurring subscriptions and expand its service offerings through additional cloud-based modules.
These strengths have been boosting CrowdStrike’s overall financial performance and have established it as one of the leading endpoint security solution providers. The company’s revenues have grown at a CAGR of approximately 52% over the past three fiscal years, from $874 million in fiscal 2021 to $3.06 billion in fiscal 2024. Similarly, its non-GAAP EPS increased more than elevenfold, from 27 cents in fiscal 2021 to $3.09 per share.
The incident has exposed the risks inherent in cloud-native platforms. While they offer numerous benefits, a single point of failure can have catastrophic consequences. The outage has raised concerns about the robustness of CrowdStrike's quality control and internal testing procedures, suggesting a need for more stringent safeguards to prevent similar incidents in the future.
Market Share Loss and Competitor Advantage
The recent outage has not only damaged CrowdStrike's reputation but also opened the door for competitors to gain market share. Palo Alto Networks, Inc. (PANW - Free Report) and Fortinet, Inc. (FTNT - Free Report) , among others, stand to benefit from any loss of confidence in CrowdStrike. The cybersecurity market is fiercely competitive, and clients dissatisfied with CrowdStrike's recent performance may consider alternative solutions.
Palo Alto Networks, with its diversified mix of on-site and cloud-based services, could attract clients seeking more reliable cybersecurity solutions. Fortinet’s rich experience in the security space and continued delivery of mission-critical solutions might attract customers who are looking to switch to another platform following the aftermath of CrowdStrike’s IT outage.
Microsoft, which has been steadily expanding its cloud-based cybersecurity offerings, may also see increased interest as organizations reassess their cybersecurity strategies. The high-profile nature of CrowdStrike's failure has amplified the visibility of its competitors, potentially accelerating their market share gains.
Lofty Valuations
CrowdStrike’s lofty valuation raises concerns over the stock’s upside potential. The stock trades at high multiples relative to its earnings and revenues. Currently, CrowdStrike's price-to-earnings (P/E) and price-to-sales (P/S) ratios are significantly above the industry average.
CRWD stock is currently trading at 69.41X forward 12-month earnings compared with 32.33X for the Zacks Internet – Software industry. Similarly, it trades at 16.56X forward 12-month sales compared with the industry’s 2.47X.
These elevated valuations indicate that a lot of future growth is already priced into the stock, leaving it vulnerable to any negative news or earnings misses.
Final Thoughts
Given the recent events, investors should exercise caution with CrowdStrike stock. The faulty Falcon update has exposed critical vulnerabilities in the company's operations, raising questions about its ability to maintain client trust and market dominance. The incident's impact on CrowdStrike's long-term growth prospects cannot be underestimated, and the company may face increased scrutiny and pressure to improve its quality control measures. Moreover, CrowdStrike's high valuation multiples add another layer of risk.
In light of the recent outage and the competitive landscape, it is prudent for investors to stay away from CrowdStrike for now. The combination of operational risks and high valuation makes this Zacks Rank #5 (Strong Sell) stock a risky proposition.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.