CrowdStrike turns to rebuilding reputation amid guidance downgrades

(Alliance News) - CrowdStrike Holdings Inc suffered the "inevitable" consequences of last month's global computer outage, as it cut both revenue and profit forecasts.

The Austin, Texas-based cybersecurity company enjoyed an improved second quarter, reporting net income for the three months to July 31 of USD46.7 million, up from USD8.5 million a year prior.

Revenue also improved, rising 32% to USD963.9 million from USD731.6 million. Of this, subscription revenue was up 33% to USD918.3 million, from USD690.0 million the previous year.

Reflecting on these results, Chief Financial Officer Burt Podbere said that strong growth across the board was demonstrative of Crowdstrike's "focused execution".

"Our market opportunity remains unchanged, and we believe our continued commitment to customers and innovation will drive even more Falcon platform adoption, protecting our customers from rapidly evolving cyber threats and enabling us to achieve our long-term targets," Podbere added.

There was, however, the calamitous event in July, when a flaw in Crowdstrike's test software pushed out a glitch to millions of Windows computers, impacting about 8.5 million devices.

"Due to a bug in the content validator, one of two (updates) passed validation despite containing problematic content data," CrowdStrike explained at the time.

The crash was particularly impactful on the airline industry, with well-known names like Delta Airlines particularly affected by the incident. Falcon, the software in question, is used to help identify and handle malware and security breaches.

"The repercussions of CrowdStrike's botched IT upgrade have come to haunt the company. July's software bug that caused a global IT outage is already having a negative effect on new business, leading CrowdStrike to cut its revenue and profit forecasts," said AJ Bell's Russ Mould.

"It was inevitable that prospective customers might think twice about signing up to CrowdStrike in the wake of the botched software update over the summer. Companies need to be able to trust that suppliers can get the job done and CrowdStrike's failures will have prompted greater scrutiny in the boardroom from potential clients as to whether it is up to the job. Its reputation has been dragged over the coals and it needs to resolve the matter fast," Mould added.

Despite seeing subscriptions rise in the second quarter, CrowdStrike now expects an estimated USD30 million subscription revenue impact in each of the remaining financial quarters. The third quarter will end on October 31.

This adjustment is a result of incentives related to its customer commitment package.

"Existing clients looking to jump ship and move to another provider might find the costs too much to stomach, particularly if they have to keep paying CrowdStrike until the end of their contract term as well as paying a new supplier at the same time. That gives CrowdStrike some breathing space, but it also means it has to act fast to prove its worth to existing clients so they renew contracts," explained Mould.

Accordingly, CrowdStrike now expects an estimated impact in the "high-single digit millions" to professional services revenue in the second half, also as a result of incentives related to its customer commitment package.

"A big chunk of earnings growth comes from upselling services to existing clients. There now has to be a greater chance that companies reflect on CrowdStrike's July software configuration catastrophe and decide to spread their risks when it comes to cybersecurity suppliers, not relying on a single entity to do everything," said Mould.

"It looks like CrowdStrike has put out the fires and got the crisis under control. Now comes the tough part of rebuilding its reputation and cranking the growth machine back into action. That isn't going to be easy."

Shares in CrowdStrike were down 2.2% at USD258.53 in the New York pre-market on Thursday.

By Holly Beveridge, Alliance News senior reporter

Comments and questions to [email protected]

Copyright 2024 Alliance News Ltd. All Rights Reserved.