CrowdStrike Falls After Disappointing Earnings Outlook

CrowdStrike (CRWD) shares fell more than 9% in extended trading on Tuesday after the cybersecurity company issued disappointing earnings guidance. The company anticipates adjusted net income of $851.2 million to $883 million or $3.33 to $3.45 per share in fiscal 2026, well below the analyst consensus of $1.1 billion, or $4.23 per share, compiled by Visible Alpha. In the fourth quarter, CrowdStrike saw revenue grow 25% year-over-year to $1.06 billion, just above analysts' estimates. Adjusted earnings of $260.9 million, or $1.03 per share, rose from $236.2 million, or 95 cents per share, a year earlier and beat expectations.



The earnings release comes almost eight months after a technology update from the company led to a global IT outage that grounded flights, disrupted businesses, and led to class action lawsuits. The company is expecting more outage-related costs in its fiscal first quarter, with $21 million in costs relating to the flawed software update in the latest quarter, bringing the fiscal year's total to $60.1 million. Delta Air Lines has hired prominent attorney David Boies, suggesting it may be considering a lawsuit against CrowdStrike for the estimated $500 million in costs related to the outage.



CrowdStrike's CEO, George Kurtz, said in the press release that artificial intelligence is becoming more important in stopping cyberattacks. "As businesses of all sizes rapidly adopt AI, stopping the breach necessitates cybersecurity's AI-native platform," Kurtz said. The company is seeing strong momentum in its Next-Gen SIEM, Cloud Security, and Identity Protection businesses. Falcon Flex, CrowdStrike's cybersecurity platform, added more than $1 billion in deal value in the fourth quarter.

Despite the after-hours drop, CrowdStrike topped some metrics from Wall Street. The company posted $4.24 billion in annual recurring revenue, reflecting 23% growth. That topped the $4.21 billion estimate from analysts surveyed by StreetAccount and included $224 million in net annual recurring revenue. Revenue guidance was roughly in line with estimates. CrowdStrike said it expects revenue of between $4.74 billion and $4.81 billion for the year, versus an LSEG estimate of $4.77 billion.



CrowdStrike's disappointing earnings outlook can be attributed to several primary factors, including missed earnings expectations, outage-related costs, potential litigation, and reputational damage. These factors impact the company's long-term growth prospects by eroding investor confidence, potentially leading to a decrease in stock price and making it more difficult to raise capital. Additionally, reputational damage could lead to a decline in new contracts, impacting revenue growth, while increased operational costs and potential litigation expenses could strain the company's financial resources.

In conclusion, CrowdStrike's recent global IT outage and subsequent class action lawsuits have significantly influenced investor sentiment and the company's valuation. The outage and related costs have raised concerns among investors about the company's financial health and its ability to manage risks, leading to a decline in stock price and a decrease in investor confidence. The macroeconomic factors, combined with the specific challenges faced by CrowdStrike, have further contributed to the company's valuation retreat. To regain investor confidence and address the concerns raised by the disappointing earnings guidance, CrowdStrike's management should focus on improving financial communication, reaffirming long-term growth prospects, addressing the software update issue, strengthening internal controls, and engaging with investors.