On Monday, BTIG adjusted its rating on CrowdStrike Holdings (NASDAQ:CRWD) stock from Buy to Neutral following a significant software update mishap last Friday.
The cybersecurity firm's recent update led to a major global outage, affecting businesses around the world. The incident prompted BTIG to engage with senior security executives, whose feedback indicated a more negative outlook than anticipated.
The downgrade was not related to a security breach, which is considered a positive note. However, the impact on the customers' ability to generate revenue was seen as a grave error for a security vendor.
While the likelihood of existing customers abandoning CrowdStrike is low, the firm may face challenges in acquiring new customers and experience delays in closing deals due to the outage.
The firm is also expected to offer larger discounts at contract renewals and may need to provide credits to customers affected by the service disruption. BTIG has found it challenging to quantify the total impact of the incident but has drawn parallels with similar events, such as the Okta (NASDAQ:OKTA) breach. Consequently, BTIG has lowered its annual recurring revenue (ARR) forecasts for CrowdStrike for fiscal years 2025 and 2026 by 1.7% and 2.8%, respectively.
Despite an 11% decline in CrowdStrike's share value last Friday, with the NASDAQ overall down by 0.7%, the company's stock still trades at a premium—14.7 times its calendar year 2025 estimated enterprise value to sales ratio.
This figure is significantly higher than the average of 7.3 times for its peers in the security sector. Given these factors, BTIG sees a balanced risk-reward scenario and has consequently revised its stance to Neutral.
InvestingPro Insights
In light of the recent challenges faced by CrowdStrike Holdings (NASDAQ:CRWD), it's crucial for investors to consider the company's financial health and market performance. As per InvestingPro Data, CrowdStrike's market capitalization stands at a robust $74.22 billion. Despite the software update mishap, the company's revenue has shown a strong growth rate of 34.26% over the last twelve months as of Q1 2023. This is complemented by a gross profit margin of 75.29%, underscoring the firm's ability to maintain profitability amidst operational challenges.
InvestingPro Tips highlight that CrowdStrike is expected to see net income growth this year, which could reassure investors about the company's capacity to recover from the recent outage. Additionally, the company's liquid assets exceed its short-term obligations, suggesting a stable financial position that could help navigate through the current situation. For those considering deeper analysis, there are over 10 additional InvestingPro Tips available that could provide further insights into CrowdStrike's valuation and performance metrics.
Interested investors may find it beneficial to explore these insights and consider the long-term value proposition of CrowdStrike. For a more comprehensive analysis, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription at InvestingPro.
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