Until July, shares of CrowdStrike Holdings (NASDAQ: CRWD) were flying high, having gained more than 50% since the start of the year. And that was part of a triple-digit increase over the past five years. That’s as the company wowed existing customers and potential ones with its platform powered by artificial intelligence (AI) to protect their businesses from cyberattacks.
In fact, CrowdStrike has become such a cybersecurity powerhouse that when the company launched a faulty software update in July, the world seemed to screech to a halt. Airlines, hospitals, and other businesses across sectors faced blue screens and couldn’t continue with their daily operations.
It launched a fix within about an hour, but some customers took weeks to recover. And the outage could have cost Fortune 500 companies more than $5 billion, according to insurance firm Parametrix.
Following this outage — which experts call the world’s biggest ever — investors fled CrowdStrike stock, worried about the impending impact. But now, some major news from CrowdStrike offers us an encouraging clue about how this might affect the cybersecurity provider in the coming months.
Image source: Getty Images.
CrowdStrike’s Falcon platform
First, a few details about CrowdStrike’s cybersecurity platform, Falcon, which gathers data from across an enterprise and beyond in order to determine potential threats. Customers can choose among 28 modules according to their specific security needs. And a significant number of customers have signed on for several, with adoption rates for five or more modules at 65% in the recent quarter.
All of this has helped earnings to soar. For example, in the recent quarter, ended about two weeks after the July outage, the company reported a 32% increase in annual recurring revenue, a subscription gross margin of 78% under generally accepted accounting principles (GAAP), and record operating cash flow and free cash flow. On top of this, CrowdStrike has more than $4 billion in cash on its balance sheet.
Of course, business prior to the outage led to these results. Investors since then have worried that existing customers would flee and potential new ones would turn to rivals.
Now comes the major news for the company’s investors about this concern. During the earnings call last month, management said the July outage delayed the closing of deals but “the vast majority of these deals remain in our pipeline.”
It even won two major deals following the outage. One is an eight-figure agreement with an enterprise software company that already was a customer, to replace another vendor and expand its use of Falcon. The other is a nine-figure contract with a major company.
Are CrowdStrike customers satisfied?
CrowdStrike says the general trend with current customers has been positive, with most being satisfied with its response to the outage, including the steps to prevent future problems. In fact, one customer affected by the outage recently chose the company for a new next-generation security project, management said.
All of this suggests customers aren’t heading for the door, while it even has attracted new customers since the event, showing that its reputation remains intact. It’s important to remember that the outage didn’t involve a cyberattack but was simply linked to a faulty software update. So CrowdStrike’s ability to do its job wasn’t called into question.
Following the news about the new deals, it seems unlikely that the cybersecurity provider will lose significant market share due to the outage. Instead, it looks like growth could continue as before.
So, what does this mean for you as an investor? It’s now clear that in general, existing customers and potential new ones haven’t jumped ship. CrowdStrike still could face some costs linked to the mess, but what’s most valuable — its reputation and ability to win contracts — seem secure. And that means shareholders, like customers, might want to stick with this top cybersecurity stock for the long haul.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool has a disclosure policy.
