CrowdStrike: Don't Catch A Falling Knife

seekingalpha07-23

CrowdStrike Holdings, Inc.'s faulty security update caused one of the largest IT outages ever, resulting in the stock plummeting 11.1%.Despite solid sales growth, CrowdStrike's profitability does not ...

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Mowna
07-23
Mowna
Omg🥺

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href=https://seekingalpha.com/article/4705515-crowdstrike-dont-catch-a-falling-knife><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>CrowdStrike Holdings, Inc.'s faulty security update caused one of the largest IT outages ever, resulting in the stock plummeting 11.1%.Despite solid sales growth, CrowdStrike's profitability does not ...</p>\n\n<a href=\"https://seekingalpha.com/article/4705515-crowdstrike-dont-catch-a-falling-knife\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU1951200564.SGD","symbol_name":"Natixis Thematics AI & Robotics Fund R/A 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Inc."},"translate_title":"CrowdStrike：不要接住掉落的刀","themeId":"","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CRWD":1},"content_text":"CrowdStrike Holdings, Inc.'s faulty security update caused one of the largest IT outages ever, resulting in the stock plummeting 11.1%.Despite solid sales growth, CrowdStrike's profitability does not justify its high valuation, making it vulnerable to selling pressure.Terms of service protect CrowdStrike from liability, but customer subscription losses could lead to further stock decline.Sundry PhotographyCrowdStrike Holdings, Inc. (NASDAQ:CRWD) got clobbered on Friday after it turned out that the cyber-security firm was responsible for one of the largest IT outages ever. It resulted in the grounding of planes and causing millions of Windows devices to crash due to a faulty security update.Not surprisingly, CrowdStrike’s stock took a beating, slumping 11.1% on Friday and Monday’s pre-market quotes indicate that the sell-off might continue today.Though CrowdStrike is enjoying solid sales and subscription sales growth, the underlying profitability is not there to justify the stock’s excessive valuation, which makes the stock more vulnerable to selling pressure.I think that investors are dealing with a “don’t buy a falling knife” kind of situation here, and they should brace for more impact.CrowdStrike’s Security Update Causes Global IT CarnageA faulty security update for CrowdStrike’s Falcon cyber-security platform caused millions of Windows devices to lock down on Friday, leading to the dreaded blue screen of death.In addition, flights got canceled, banks were negative impacted, as were hospitals and companies around the world. The reputational damage from this event is enormous and could tempt some of the company’s customers to ditch CrowdStrike’s services.The global IT carnage has undoubtedly damaged CrowdStrike’s brand value, and the company might just be at the beginning of a major sentiment change. Other large companies, think Boeing after multiple safety blunders, have been impacted by similar PR disasters, leading to lasting damage for shareholders as well.Though CrowdStrike’s stock has been a solid performer in the last year, with the stock price rising from $160 to $398, the outlook for the stock drastically changed last week.CrowdStrike offers customers mainly endpoint security, threat intelligence, and cyber-attack response services, and the company has been able to grow its sales at impressive rates in the past.In 1Q25, CrowdStrike produced 33% YoY growth and total sales of $921 million. The lion share of sales comes from CrowdStrike’s subscription service, which delivered $872 million in sales and 34% growth YoY.As you can also tell by the company’s P&L breakdown, CrowdStrike may be able to grow its sales fast, but the cyber-security company is barely profitable (it produced a net profit of $43 million in 1Q25 on sales of $921) which explains why CrowdStrike is selling for such a high earnings multiple.Condensed Consolidated Statements Of Operations (CrowdStrike Holdings, Inc.)Terms Of Service Protect CrowdStrikeCrowdStrike’s terms of service exclude any liability from software failures, but the company may be on the hook for some fees customers paid. According to the terms and conditions on CrowdStrike’s homepage, the company is only liable for the portion of fees that are attributable to CrowdStrike’s non-performing services:8.3 Services Warranty. CrowdStrike warrants to you that it will perform all Services in a professional and workmanlike manner consistent with generally accepted industry standards. You must notify CrowdStrike of any warranty claim for Services during the period the Services are being performed or within 30 days after the conclusion of the Services. Your sole and exclusive remedy and the entire liability of CrowdStrike for its breach of this warranty will be for CrowdStrike, at its option and expense, to (A) use commercially reasonable efforts to re-perform the non-conforming Services, or (B) refund the portion of the fees paid attributable to the non-conforming Services.However, the much bigger question will be how many customers will end their subscriptions moving forward, which is something I would anticipate management to shed a light on when earnings for 2Q25 are released in late August.Drastic Sentiment ChangeCrowdStrike’s stock price retreated about 11% on Friday, which is actually not that much considering that even after that drop, CrowdStrike is up by about 99% in the past twelve months.With that said, though, the cyber-security company’s stock crashed through the 20-day and 50-day moving average lines earlier this month, which led to a much more bearish chart picture even before Friday’s crash.With CrowdStrike’s PR disaster playing out in full on Friday, the 200-day moving average, which sits at $289, is now also in play and could get tested in the short term. A break of this moving average line creates immediate additional downside to $260, which is where the company has some support.Moving Averages (Stockcharts.com)Expect The Valuation To Come Under More PressureCrowdStrike still has an unsustainable valuation, in my view. The stock is presently selling for 14.7x next year’s sales and 58.9x next year’s profits. These are very high multiples to pay, particularly for a company whose software update just caused the world’s largest IT outage.SentinelOne, Inc. (S), a peer infrastructure and cyber-security company, is selling for 6.6x next year’s sales and 98.7x next year’s profits.With that said, though, SentinelOne could be a beneficiary from declining trust in CrowdStrike’s services and the company is enjoying considerable profit momentum: SentinelOne is anticipated to produce 450% profit growth in 2025 compared to 23% for CrowdStrike.Earnings Estimate (Yahoo Finance)Upside RisksIn case CrowdStrike’s customers are not bailing out and ditching their subscriptions, the stock could theoretically recover, though I consider the odds of this happening in the short term to be minimal.Companies that suffer through a major, negative PR event, think Boeing’s (BA) much-publicized safety disasters, tend to have longer-lasting financial and economic impacts. Investors have a propensity to avoid their stocks, simply because of the large amount of uncertainty that has been created.Should CrowdStrike avoid customer losses on the back of this global IT outage, the stock might recover, but it would be very surprising for me to see this happening.I think that the reputational damage suffered here is unlikely to be get shrugged off by investors, and the stock could drop significantly further still.My ConclusionInvesting wisdom dictates that investors don’t try to catch a falling knife, which CrowdStrike might very well be. It also might get a lot worse before it gets better for the cyber-security company, and there is no rush, in my view, to buy the stock.A lot of brand damage has been done to the CrowdStrike name last week. Though the TOS protects the company to a certain degree, competitors like SentinelOne might profit from CrowdStrike’s mishap. It is probable that at least some customers will jump ship and not renew their subscription in light of last week’s carnage, which could pose a headwind to CrowdStrike’s sales growth moving forward.Considering that CrowdStrike is still selling at a rather inflated valuation, last week’s negative PR event could trigger a much sharper price reaction in the coming weeks and months ahead. Avoid.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-2","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[{"id":330557183455264,"gmtCreate":1721708221698,"gmtModify":1721708225126,"author":{"id":"4184757113362762","authorId":"4184757113362762","name":"Mowna","avatar":"https://community-static.tradeup.com/news/default-avatar.jpg","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"4184757113362762","authorIdStr":"4184757113362762"},"htmlText":"Omg🥺","listText":"Omg🥺","text":"Omg🥺","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/330557183455264","repostId":2453906567,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":11,"commentSize":1,"repostSize":0,"favoriteSize":2,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2453906567"}