Stock Plummets but Online Media Audience Grow - What’s Next for Crowdstrike?

July 23, 8:03 pm

On Monday, CrowdStrike ($CRWD) shares dropped 13% as the company grappled with the fallout of the defective update issued early Friday. This update to its Falcon vulnerability-protection software caused PCs, computer servers in data centers, and display screens to crash, leading to significant disruptions, including grounded flights and canceled medical appointments. The incident affected 8.5 million Windows devices, a small fraction of the global total, but significant enough to cause widespread chaos.

The rapid response from IT staff helped mitigate some of the immediate damage, but hackers seized the opportunity to create malicious websites posing as software updates. This added another layer of complexity to an already critical situation. CrowdStrike’s CEO, George Kurtz, addressed the situation publicly on CNBC, seeking to reassure stakeholders.

The stock initially fell by 11% on Friday, exacerbated by social media posts over the weekend showing the notorious "blue screen of death." By Sunday, CrowdStrike announced it was testing a fix to resolve the issue quickly. Despite these efforts, the damage to the company's reputation was already done.

Guggenheim Securities responded by downgrading CrowdStrike’s rating from buy to neutral. Analysts, led by John DiFucci, pointed out that the stock was trading at a high multiple of recurring revenue, indicating potential overvaluation. They emphasized that while they respect the leadership at CrowdStrike and believe the company could emerge stronger in the long run, it was challenging to recommend buying the stock under the current circumstances.

Goldman Sachs, however, maintained its buy rating but acknowledged that closing deals might take longer due to the incident. The sentiment on investing subreddits and stock forums hit an all-time low over the weekend, reflecting widespread investor concern about CrowdStrike’s competence and reliability. However, some investors viewed the dip as a buying opportunity, believing the stock might be undervalued given the company’s long-term potential.

Alternative data insights

The outage has sparked discussions about potential reputational damage, the loss of current customers, and hesitation from potential new customers. Shareholders could face significant challenges, including possible class actions and government inquiries. Despite these hurdles, CrowdStrike has seen a surge in its social media following, with notable increases in followers across Facebook, Instagram, and Twitter. This expanded digital footprint could offer opportunities for the company to rebuild its image and engage with a broader audience.

However, internal sentiment appears to be declining, with a noticeable decrease in business outlook among employees and significant insider selling of shares. This internal unrest could signal deeper issues that the company needs to address to restore confidence among its workforce and investors.

In summary, while CrowdStrike is navigating a challenging period following the software update debacle, its long-term prospects remain a subject of debate. Investors with a long-term perspective might find the current dip an attractive entry point, but the path to recovery will require strategic management, customer reassurance, and operational stability.

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