- Cybersecurity leader CrowdStrike’s software update incident in July does not appear to have hampered the company’s sales and revenue growth.
- Although the company’s shares plummeted after the incident, they have since steadily recovered some of the lost ground.
- If CrowdStrike is likely to continue growing, the summer incident could be a good opportunity to buy the dip.
In July 2024, a defective software update by cybersecurity company CrowdStrike Holdings (NASDAQ:) led to global technology disruptions across multiple industries. In response, CrowdStrike shares plummeted, losing nearly 44% of their value in about two weeks before bottoming out in early August. Since then, CrowdStrike stock has made a fairly steady recovery, although it is still well below pre-incident levels.
For the most part, CrowdStrike has been fairly quiet about the buggy update since the summer. However, a recent earnings report from Delta Air Lines (NYSE:) has brought the incident back to the attention of investors around the world. The aviation incident had a major impact on the CrowdStrike industry, with many companies canceling flights for days. Delta was among the hardest hit, with about 7,000 flight cancellations over a week, and its earnings report reflects this: the company posted both top- and bottom-line misses, including a $380 million loss in revenue due to the incident, and slashed its revenue numbers . guidance for the future as a result.
Months after the software incident, investors have largely returned to optimism about CrowdStrike. Thirty-four Wall Street analysts have rated the stock as a Buy, while only seven currently have a Hold or Sell rating. Analysts predict the stock price will continue to rise, although with an upside potential of 5.8%, the stock is not expected to reach its pre-incident high. With so much speculation surrounding this company, it’s worth taking a closer look at the company’s fundamentals to determine whether it’s likely to continue this upward trajectory or whether another cybersecurity company might be able to capitalize on this moment.
Strong quarterly performance and customer retention
Much of the renewed enthusiasm for CrowdStrike may be due to its impressive results for the second quarter of fiscal 2025, which ended less than two weeks after the incident. During this period, the company posted a 32% year-over-year increase in total revenue and operating income, compared to a loss the year before. Net earnings per share attributable to the company were 19 cents, compared to just three cents in the same period last year. The company’s Falcon platform continues to generate subscriptions.
CrowdStrike’s cybersecurity products are tightly integrated into the technical infrastructure of many of its customers (two-thirds of customers use at least five CrowdStrike modules simultaneously), making switching to another provider cumbersome and costly. This may have contributed to the company’s strong customer retention even after the software update debacle. The company has entered into new partnerships since July, including a major new collaboration with NVIDIA (NASDAQ:). Overall, the company had a gross spend rate of 98% as of September after the incident.
Future growth possible
Although it has been below its peak since the summer, CrowdStrike is still an expensive stock. It trades at a huge price-to-sales ratio of 21.5. However, the company has room to grow as it expands its AI-based offerings and acquires new customers. CrowdStrike executives have set a goal of reaching $10 billion in annual recurring revenue by the end of fiscal year 2029. This is a lofty goal, but it appears the company is on track to achieve it, especially if it can continue to improve its margins.
Analysts are optimistic that the company will also realize growth measures in the meantime. Based on analyst ratings, the company’s expected earnings growth is a healthy 54.7%.
A dip opportunity
Suppose the future trajectory of CrowdStrike looks like this. In that case, it will seem likely in retrospect that the July software update incident was a minor glitch for the company, giving investors a rare moment to buy the dip.
While shares remain below their peak levels from earlier this year, the dip remains, albeit narrowing as CRWD continues to regain lost ground.
On the other hand, investors can also view this as an opportunity to look at CrowdStrike’s competitors Palo Alto Networks (NASDAQ:)which currently has a price-to-sales ratio of 15.2.
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