Why the good ol’ days can’t return for CrowdStrike stock

The dust is finally in starting to sit down FROM CrowdStrikehis (CRWD 0.16%) massive IT disruption worldwide. Now it’s time to assess the damage to CrowdStrike’s stock, reputation, and prospects.

In short, the company is in a bad pickle. Its stock fell more than 40% following the outageand the company is already the target of at least one process.

These are just a few of reasons why CrowdStrike may struggle to regain its former status as a darling growth stock. Here’s what that could mean for investors.

Image source: Getty Images.

First, turn it off Fire

In any crisis, the first step is to ameliorate the problem at hand — to put out the fire. CrowdStrike did that. Broadly speaking, the company recognized its mistake early, provided guidance on how to solve the problem and restore most customers quickly.

That said, not all customers — or person affected by the interruption — going to supports my CrowdStrike Culp and move on.

For starters, a group of frustrated travelers filed a class-action lawsuit claiming they incurred additional travel-related expenses due to flight cancellations caused by CrowdStrike’s botched software update. The plaintiffs seek compensatory and punitive damages. This damage could add up for CrowdStrike, as more than 5,000 flights or approximately 5% of all global flights on July 19were canceled due to disruption.

In addition, CrowdStrike could also face lawsuits from its customers. Public, Delta Air Lines was the most outspoken, with CEO Ed Bastian trashing CrowdStrike and blaming the company for the week-long series of Delta flight cancellations and delays. Bastian estimated that the outage cost Delta $500 million and that CrowdStrike “gave us nothing.”

Worse, it’s very likely that other customers are just as upset, but haven’t complained publicly.

Either way, the total cost of this disruption to CrowdStrike could be massive. Eestimates of the total cost of disruption have reached up to 10 billion dollars. So while it’s unclear how much — if any — of it figure CrowdStrike might need it pony upis a considerable concern that adds an enormous amount of uncertainty to an early-stage company that wants to focus on using $3.7 billion in cash on hand to grow its business — not to pay lawyers or settle lawsuits.

However, what is clear is that CrowdStrike is now entering its most important phase crisis, which will likely determine its long-term prospects: management its relationships with customers.

Can CrowdStrike retain its customer base?

In the endthat’s what CrowdStrike is all about. If the firm i can’t retains its existing customer base, its business prospects will decreases. Remember, CrowdStrike is a growth-oriented company with few profits. In its most recent quarter (the three months ending April 30, 2024), CrowdStrike reported just $43 million in net income — despite generating $921 million in revenue for the same period.

Almost all of the company’s revenue (95%) comes from subscriptions paid by customers for its security products. Crucially, these products are modular, allowing customers to add (and remove) different security features. Therefore, dissatisfied customers could potential scale back their spending on CrowdStrike products by canceling subscriptions for certain modules. That is, if they don’t walk away from their subscriptions altogether.

What is perhaps worse for the company is that some potential customers may now be hesitant to settle or expand their relationship with CrowdStrike.

In either case, CrowdStrike’s revenue growth — the lifeblood of any growth stock — could take a while serious hit in subsequent quarters as reputational damage from this disruption is revealed. That, more than anything else, is why CrowdStrike isn’t the company — or the stock — it was just a month ago. He will have to resolve this crisis of confidence before he can regain his former status.

CRWD Revenue Data (Quarterly Yearly Growth) by YCharts

Investors should be extremely cautious with CrowdStrike stock. The company claimed a serious hit, and cautious investors should wait and see how the company fares in the coming quarters. On the one hand, CrowdStrike could bounce back from this crisis and continue on its path to becoming a leader in the cyber security sector. Then again, customers could ditch the company, which would undermine the bullish thesis surrounding CrowdStrike stock.

In that case, investors would be wise to wait and see.