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A sign is posted on the exterior of a CrowdStrike office in Sunnyvale, California, US. File photo: JUSTIN SULLIVAN/GETTY IMAGESustin Sullivan
A sign is posted on the exterior of a CrowdStrike office in Sunnyvale, California, US. File photo: JUSTIN SULLIVAN/GETTY IMAGESustin Sullivan

Bengaluru — CrowdStrike’s results on Wednesday will offer a first look at the financial implications of the global cyber outage that paralysed the Microsoft Windows operating system last month, with investors keen to understand the impact on the cybersecurity firm’s reputation and whether it has led to potential market share losses to rivals.

The July 19 outage was caused by a faulty software update from CrowdStrike that disrupted internet services globally, leaving thousands of people stranded at airports after mass flight cancellations and causing broadcasters to go off-air, while sectors such as banking to healthcare were also hit hard.

The incident affected nearly 8.5-million Windows devices, Microsoft had said, and sparked several lawsuits for CrowdStrike, including one from Delta Air Lines.

“We worry new customer additions are going to see an impact. Executives may want to get ‘into the weeds’ on why CrowdStrike is the right answer and why their choice is not inviting a future outage,” Bernstein analysts said in a note.

The outage may have compromised CrowdStrike’s ability to negotiate with clients on its terms and acquire new deals, giving rivals an opportunity to seize market share in the short term.

After the outage customers have reevaluated their options, Palo Alto Networks’ CEO Nikesh Arora said on a post-earnings call last week. Analysts say rivals have increased discounts since the incident to attract customers, thereby gaining market share from CrowdStrike. More than half of the 45 brokerages covering the company have cut their annual revenue estimates after the incident, with several expecting CrowdStrike to lower its annual revenue forecast from the current outlook of $3.98bn-$4.01bn.

Revenue jump

Shares of the company have declined about 20% since the outage, wiping about $20bn from its market value. SentinelOne and Palo Alto Networks have gained 25.4% and 8.3%, respectively. Still, CrowdStrike’s stock is up more than 5% for the year, buoyed by the company’s dominant position in an industry in which customers are turning to larger providers that offer integral cybersecurity solutions to reduce costs.

The company is expected to report a 31% jump in revenue for the quarter ended July, according to analysts polled by LSEG. Some analysts suggested that the hit from the outage is likely to be short term, pointing to CrowdStrike’s strong position in the industry and the high costs associated with switching from one large cybersecurity provider to another.

“Not all customers felt the pain,” Bernstein said, adding that “replacing CrowdStrike may be an even riskier move, and seems unlikely”. Some analysts also said that CrowdStrike’s efforts to help customers bring their systems back online after the outage have helped its reputation among existing clients.

However, “with competitors such as Palo Alto Networks ready to pick up lost business, CrowdStrike has to mount a charm offensive to win back trust in partners and customers”, said Gadjo Sevilla, senior analyst for technology at Emarketer. The company is set to participate in the summit Microsoft plans to hold in September to improve cybersecurity systems.

Reuters

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