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CrowdStrike revenue prospects weaken after Microsoft outage

CrowdStrike (CRWD) reported better-than-expected revenue and earnings for the quarter ended today, July 31. However, the company’s lower full-year revenue forecast suggests that the July 19 global Windows outage caused by a faulty CrowdStrike update could have at least a short-term impact on the business.

CrowdStrike’s quarterly revenue of $963.9 million and earnings of $1.04 per share both came in better than Wall Street analysts expected, but its full-year revenue forecast of $3.89 billion to $3.9 billion was below expectations of $3.98 billion to $4.01 billion, and the company also significantly lowered its earnings forecast.

CrowdStrike’s bleak revenue prospects

In a conference call following the release of the results, Burt Podbere, CFO of CrowdStrike, gave some reasons for the gloomy outlook.

First, the company suspended its prospecting activities immediately after the outage, but has now resumed them. Another reason for the “less than usual” transparency in financial forecasts is the uncertainty about any legal costs that could arise from the outage.

But the biggest hit – nearly $70 million – will come from “incentives related to our customer loyalty package” as the company tries to get customers to purchase a more comprehensive platform – an approach also taken by competitors such as Palo Alto Networks (PANW).

Podbere said CrowdStrike “expects extended sales cycles” and that more time will need to be spent in the coming months convincing executives to close deals.

CEO George Kurtz also said he expects “headwinds” next year before sales pick up, including some deals delayed by the power outage. Still, he struck an optimistic tone on the conference call.

Kurtz said the company has closed one “seven-figure” deal and one “eight-figure” deal since the outage, among several other successes.

Long-term revenue forecast for CrowdStrike declines

But despite the optimistic earnings call—and the congratulatory tone of some Wall Street analysts on the conference call—those same analysts seem to have numerous doubts about CrowdStrike’s long-term prospects.

At least half a dozen analysts have cut their earnings and revenue forecasts for CrowdStrike for the next 18 months since the outage. And the expected revenue growth rate for the next five years has fallen even more drastically, according to analyst estimation services – from an expected annual growth rate of about 28 percent to less than 19 percent.

That’s still an enviable growth rate for most companies, but it suggests analysts are concerned that CrowdStrike’s competitors could attract more attention from competitors in the wake of the outage.

Security agreements are being examined more closely

The CrowdStrike outage in particular changed the calculations of endpoint detection and response (EDR) buyers after a security tool designed to save users hassle caused a larger cyber incident than any cyberattack before.

For those who can get by with less, something like Microsoft’s free Defender endpoint security tool might be enough. For everyone else, security tools that integrate deeply into the user’s environment may be something buyers will be scrutinizing much more closely in the future.

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