CrowdStrike (CRWD.O) is facing another tough day as its shares dropped 5% in premarket trading on Monday. This decline extends a losing streak triggered by a global cyber outage last week, which has led several analysts to downgrade the stock over concerns about the financial repercussions.
The trouble began with a problematic update to CrowdStrike’s security software, impacting computers running Microsoft’s Windows operating system. The glitch disrupted internet services worldwide, cutting off access to essential services like banking and healthcare for millions. Microsoft (MSFT.O) reported on Saturday that approximately 8.5 million Windows devices, or less than 1% of all Windows machines, were affected.
While services across various industries began to recover by late Friday, the outage left a trail of backlogs, delays, and canceled flights. These issues have sparked a debate about how to prevent similar incidents in the future and whether such critical software should be controlled by a few companies.
Guggenheim analysts expressed concerns on Sunday, suggesting that CrowdStrike might struggle to secure new deals in the short term due to the fallout from this quality assurance failure. “While the outage could remain a near-term overhang, we believe CrowdStrike will emerge as a stronger company as this was not a breach, but rather a significant breakdown in process,” noted RBC Capital Markets analysts, highlighting a silver lining.
The incident has prompted at least six brokerages to lower their price targets on CrowdStrike, with two downgrading the stock from “buy” to “neutral.” The initial shockwave from the outage caused an 11% drop in CrowdStrike’s shares on Friday.
Interestingly, this turmoil for CrowdStrike has coincided with a slight uptick for its cybersecurity competitors. Shares of Palo Alto Networks (PANW.O), Sentinel One (S.N), and Fortinet (FTNT.O) saw increases of 1% to 3% in premarket trading on Monday, suggesting that investors may be shifting their focus to other players in the cybersecurity field.
Despite the setback, analysts believe that CrowdStrike will ultimately emerge stronger, as the issue was not a breach but a process failure.
The swift recovery of services and the debate on future prevention could lead to stronger industry standards and improved cybersecurity measures.
The immediate impact on CrowdStrike’s ability to secure new deals and the resulting financial implications are significant concerns for investors.
Overall, while CrowdStrike navigates the immediate challenges posed by this outage, the situation underscores the importance of robust quality assurance processes in cybersecurity. This event serves as a wake-up call for the industry, reminding everyone of the critical role these companies play in our interconnected world.