CrowdStrike said Wednesday that a bug in its validator resulted in problematic content passing validation, thus spurring a global IT outage
CrowdStrike shares are down again on Wednesday.
“Now What?”
That’s Citi Research analyst Fatima Boolani, weighing on CrowdStrike Holdings Inc. as the fallout continues from a bad software update thattriggered a global technology outage.
CrowdStrike shares dropped 4% on Wednesday after seeing a bit of reprieve from the red ink on Tuesday. They’re down 24.8% from Thursday’s close.
While Boolani remains bullish on CrowdStrike shares, she conceded that a lot of the “hand-wringing” around the stock “has merit.” For one, she noted the potential for pricing pressures both in the near- and medium-term.
CrowdStrike “is likely to encounter potentially prolonged, unsavory, and compressing pricing/negotiating leverage,” Boolani wrote. More immediately, the company could face customer requests for discounting, and beyond that, there’s the risk of “structural impact to premium-pricing power.”
Still, she noted that there are areas where investors perhaps shouldn’t be so concerned, especially since the incident resulted from a bad software update, not a breach. The CrowdStrike-sparked outage “categorically does not detract from [CrowdStrike’s] solution efficacy” and was “clearly a result of poor software engineering testing/controls/processes,” she wrote.
CrowdStrike disclosed more on Wednesday about how the incident happened, disclosing in a preliminary review that a bug in its validator resulted in content passing validation even though it had problematic data.
The incident is surely a stain on CrowdStrike’s reputation. But “even valid fears of customer defection are likely to have practical limits,” Boolani said, since there are “limited high-quality alternatives” to CrowdStrike and defection to Microsoft Corp. or Palo Alto Networks Inc. could grow customers’ exposure to a particular vendor, potentially creating risk.
Boolani cut her price target on CrowdStrike shares to $345 from $425, but she stuck with a buy rating.
Rosenblatt Securities analyst Catharine Trebnick also remained bullish despite flagging some areas to monitor.
“While CrowdStrike’s [service-level] agreements limit liability, legal costs associated with potential lawsuits and settlements are a concern,” she wrote. “The company’s insurance coverage and experienced legal team should help mitigate these expenses.”
She saw the prospect of pricing concessions as well, and she brought her price target down to $350 from $420.
She deemed the incident “a temporary setback in an otherwise strong growth trajectory, supported by the company’s solid fundamentals and leading market position.”
