On Wednesday, Citi adjusted its outlook on CrowdStrike Holdings (NASDAQ:CRWD) shares, reducing the cybersecurity firm's price target from $345.00 to $300.00, while maintaining a Buy rating on the stock.
The reassessment comes in the aftermath of a global IT outage that occurred approximately three weeks ago, which was triggered by CrowdStrike's technology.
The recent IT incident has prompted discussions with CrowdStrike's partners and legal experts regarding the potential repercussions and legal consequences for the company.
According to Citi, CrowdStrike is expected to face several challenges, including executive distractions, an increase in discounting, weaker negotiation and execution leverage, and the uncertainty of litigation.
Despite these short-term headwinds, the long-term effects and reputational damage are deemed to be limited, thanks to the company's proactive response and acknowledgment of the incident as a rare 'black swan' event.
Citi believes that CrowdStrike will be able to gradually recover from the impact on its business, which includes slowed momentum in expanding its existing customer base and a softer pipeline for acquiring new logos. This perspective has been factored into Citi's second revision of its forecast for the company.
In discussions with partners, no intentions have been revealed by customers to seek compensatory or punitive damages. Nevertheless, the ongoing negative press and potential litigation from Delta Airlines (NYSE:DAL), which has been mentioned by CrowdStrike as having its liability capped in the single-digit millions, could influence other customers or insurance entities to take similar legal actions.
Citi has updated its downside scenarios and lowered terminal multiples, leading to the revised price target of $300. Despite the challenges faced by CrowdStrike, Citi reaffirms its Buy rating, signaling confidence in the company's ability to navigate through the current difficulties.
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