CrowdStrike Holdings Inc.'s first earnings report following a global technology disruption that impacted millions of Windows systems highlighted challenges for the company's future revenue growth.
CrowdStrike anticipates a $60 million revenue impact for the full fiscal year due to the July incident, when a technical update from the company crashed millions of computers globally, grounding flights and disrupting payment systems. The $60 million stems primarily from customer incentives offered in response to the incident. CrowdStrike also said it has diminished visibility into revenue growth for the second half of the fiscal year, as sales have stagnated and have yet to recover to pre-incident levels. The company expects sales cycles to lengthen as it navigates the aftermath of the incident.
"We ... believe that CrowdStrike may need to use price more to win deals now that product supremacy is in doubt versus near-peer competitors like SentinelOne and Palo Alto Networks," West Park analyst Paul Rodriguez said in a client note.
The impact from legal actions from customers remains unknown, and CrowdStrike's customer agreements contain provisions designed to limit its legal liability. Delta Air Lines Inc. sued CrowdStrike following the July incident, with the airline saying it lost $500 million due to the tech disruption. Shareholders also filed suit, claiming CrowdStrike misled investors about the testing of its software update. The cases are pending.
CrowdStrike's year-over-year revenue growth of 32% came in 1 percentage point lower than the growth posted by smaller direct competitor SentinelOne Inc. The companies' respective guidance for the third quarter shows a greater divide: SentinelOne expects its revenue growth to fall to 28% while CrowdStrike expects its growth to decline to 25%. Palo Alto Networks Inc., another competitor in endpoint security, said it expects flat revenue growth in the next quarter.
SentinelOne and Palo Alto left room for upside surprises. SentinelOne said its guidance did not include projections for any CrowdStrike customers that could choose to migrate to its offering following the July incident. SentinelOne CEO Tomer Weingarten said in an earnings call that the company has already seen "customers choosing to move away" from CrowdStrike.
"Some of them have moved away already to SentinelOne. Some of them are in the process. Some of them will take time to assert. But I think everybody is considering their next steps," Weingarten said.
Palo Alto Networks CEO Nikesh Arora also indicated that customer interest for its endpoint security offering has increased since the CrowdStrike incident. "On the [extended detection and response] space, it's no longer a slam dunk for some other players in the market, which is helpful for us," Arora said.
While CrowdStrike's valuation remains the richest among peers and the broader cybersecurity sector, the gap has narrowed significantly. CrowdStrike has seen its valuation fall from about 25x times revenues to less than 19x, while closer competitors saw their valuations expand.
