Why CrowdStrike (CRWD) Stock Is Nosediving
What Happened:
Shares of cybersecurity company CrowdStrike (NASDAQ:CRWD) fell 14.7% in the morning session after a global technology outage. The outage was caused by a faulty update deployed by CrowdStrike to computers running the Microsoft Windows operating system. CrowdStrike has clarified that the issue wasn't caused by "a security incident or cyberattack." CEO George Kurtz noted on the social media platform X (formerly called Twitter) that "the issue has been identified, isolated, and a fix has been deployed."
However, the issue had far-reaching consequences, affecting systems in industries delivering critical services, including hospitals, banks, and airports. CRWD stock's decline suggests markets might be struggling to understand the long-term implications of the issue, especially as it relates to CrowdStrike maintaining its dominance in the highly competitive cybersecurity space, which often permits little to no room for mistakes.
Wedbush analyst Dan Ives provided insights on how this might play out, adding, "It could create opportunity for some competitive displacements, but this will take time to determine the path of CIOs and companies looking ahead and related legal actions related to this outage."
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What is the market telling us:
CrowdStrike's shares are very volatile and over the last year have had 15 moves greater than 5%. But moves this big are very rare even for CrowdStrike and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 5 months ago, when the stock gained 25.2% on the news that the company reported fourth-quarter results with revenue and ARR (annual recurring revenue) beating by a slight margin but very convincingly on operating profit.
Keeping with that theme, while forward guidance for the next quarter and the full year were only slightly above expectations, non-GAAP EPS guidance was more convincingly ahead, showing better-than-expected profitability.
Lastly, Palo Alto Networks (NASDAQ:PANW) warned of weakness in security spending earlier when it reported earnings, sending waves of caution across the sector. Cybersecurity peers that reported after Palo Alto put up mixed results, which kept investors on edge for CrowdStrike's results. These results could signal a shift in sentiment given CrowdStrike's popularity within the cyber security space, especially considering its cloud security capabilities.
CrowdStrike is up 27.5% since the beginning of the year, but at $313.98 per share it is still trading 19.9% below its 52-week high of $392.15 from June 2024. Investors who bought $1,000 worth of CrowdStrike's shares 5 years ago would now be looking at an investment worth $3,768.
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