Over the last 30 days, the once-cybersecurity darling of the Fortune 500 is down 35%, presently priced at $254.70 per CrowdStrike Holdings Inc (NASDAQ:CRWD) share. With a colossal update blunder corrupting the operations of up to 8.5 million Windows devices, CrowdStrike opened a Pandora’s box of questions.
If a cybersecurity firm can inflict such damage, estimated at a $5.4 billion loss by Parametrix insurer, where is the line between malicious hackers and cyber guardians? What measures must be taken to decrease reliance on a few cybersecurity heavyweights?
Should organizations dilute the cloud-native focus by adopting a hybrid approach with on-site premise solutions despite the costs?
Purportedly, CrowdStrike had measures to prevent Pandora’s box from opening, but even the cloud-based validation checks had run into a bug.
“On July 19, 2024, two additional IPC Template Instances were deployed. Due to a bug in the Content Validator, one of the two Template Instances passed validation despite containing problematic content data.”
CrowdStrike’s official summary of the issue, updated on July 24th.
But in the aftermath, investors are wondering if this is a case of buying the dip. After all, the least likely robbery to happen is in a place that was just robbed. Since Tuesday, the sideways action of CRWD stock, having gone down only 3%, suggests the worst of bottoming has passed.
Legal Driver of Fresh CrowdStrike Valuation
Alongside reputational damage, the first hit at CrowdStrike will likely come from lawsuits. Attorney Nick Oberheiden at Oberheiden P.C. had already called for private and public entities that have suffered harm from CrowdStrike-induced global IT outage.
Such lawsuits typically have a dual impact. On one hand, they could result in heavy restitution coming from CrowdStrike’s coffers. As of fiscal Q1 2025 ending this April, the company reported $3.7 billion in cash and cash equivalents. CrowdStrike left the quarter with $322 million free cash flow, an impressive 42% year-over-year improvement.
On the other hand, a lawsuit could serve as a speculation offramp, depending on the ongoing particulars of the case. This is likely to pose as a suppressive driver on CRWD stock if sordid details are revealed. In turn, such a dynamic would bring into question CrowdStrike’s long-term viability.
However, going by the company’s service agreement, “CrowdStrike is not liable for any indirect, special, incidental, consequential, or punitive damages, even if advised of the possibility of such damages.”
Underlying Human Capital Concerns
At the end of the line, the performance of any company is reliant on its human capital. Boeing (NYSE:BA) safety concerns first brought to the public forefront hiring practices that prioritized racial and gender accounting.
CrowdStrike follows Boeing in the same DEI boat, amplified by Elon Musk himself, noting that the company’s DEI focus is “Not very “bright” right now, is it?”.
By the same token, nearly all large publicly traded companies follow the same DEI initiatives. It remains to be seen if this corporate activism will take a back seat or it will be made to do so by the court system.
Namely, America First Legal, a conservative watchgroup, filed a federal civil rights complaint against CrowdStrike, noting that the company “engaged in alleged anti-white, anti-male discrimination”.
Regardless of the outcome of such lawsuits, it remains the case that DEI implementation is a de facto standard. In other words, investors cannot point to CrowdStrike competitors as not having that kind of perceived liability and rush to invest into them accordingly.
Case in point, CrowdStrike’s top competitor, Palo Alto Networks (NASDAQ:PANW), follows the same DEI initiative, centered around P.U.L.S.E. (Psychologically Safe, Understand, Listen, Support, Elevate). Therefore, within such an equalized landscape, CrowdStrike’s human capital selection is not an anomaly that can serve as a viable attack vector.
CrowdStrike’s Market Share and Network Switching Costs
The company’s brand could become a liability if chief technology officers (CTOs) of various companies decide to ditch its services. This is a case of balancing the cost of network switching. For example, when Adobe (NASDAQ:ADBE) shifted to software as a service (SaaS) model, the company amplified its ~60% market share dominance with Creative Cloud.
Adobe gained a more secure revenue stream while making it costly for customers to switch to alternative graphics manipulation software. After all, it takes hundreds of hours to become proficient in certain frameworks. That mental load alone serves as a bulwark against switching.
Although CrowdStrike is less dominant with a 24% market share for its SaaS endpoint protection business, it is likely that switching to a different provider will be seen as bringing another set of vulnerabilities. CrowdStrike is known for having one of the most streamlined cybersecurity solutions.
If new tools have to be deployed and learned in such a delicate environment, CEOs are likely to lean on the side of “lightning never strikes twice.”
What Do Wall Street Analysts Say About CrowdStrike?
Piper Sandler analyst Rob Owens was among the first to downgrade CRWD stock, from previous $400 to $310 per share, but still holding the “neutral” rating. Long-term, most analysts are bullish, setting the average CRWD price target at $402.53, according to S&P Global Market Intelligence.
This would put the potential for profits at 60% from the present bottom. Nasdaq’s forecasting consensus is less optimistic but still high, at $368.26 average price target based on 44 analyst inputs. The bottom is well-above the current price, at $275 per share.
Likewise, financial firm Argus Research aligns with the upside, pointing that CrowdStrike’s business is likely to expand to the “nearly 50% of companies that have not yet upgraded from traditional antivirus software”.
Although equity Argus Research CEO Joseph Bonner made that statement on June 7th, it may be the case that prospective new clients will now see CrowdStrike as fortified post the update debacle.
At present, CrowdStrike’s price to earnings’ forward ratio is 63.29, while its enterprise value/EBITDA ratio is 163.27. This confirms Bonner’s view that investors expect rapid expansion and accompanied boost in SaaS profitability.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.